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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1996
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
to
COMMISSION FILE NUMBER 0-17869
COGNEX CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2713778
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE VISION DRIVE
NATICK, MASSACHUSETTS 01760-2059
(508) 650-3000
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates
as of February 23, 1997: $634,649,794
$.002 par value common stock outstanding as of February 23, 1997: 40,969,863
shares
Documents incorporated by reference:
Specifically identified information in the Annual Report to Stockholders for the
year ended December 31, 1996, is incorporated by reference into Parts I and II
hereof.
Specifically identified information in the definitive Proxy Statement for the
Special Meeting in Lieu of the 1997 Annual Meeting of Stockholders to be held on
April 22, 1997, is incorporated by reference into Part III hereof.
A list of Exhibits to this Annual Report on Form 10-K is located on page 17.
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COGNEX CORPORATION ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996
INDEX
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PART I
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ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 4A. EXECUTIVE OFFICERS AND OTHER MEMBERS OF THE MANAGEMENT TEAM
OF THE REGISTRANT
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
</TABLE>
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PART I
ITEM 1. BUSINESS
CORPORATE PROFILE
Cognex Corporation ("Cognex" or the "Company," each of which term
includes, unless the context indicates otherwise, Cognex Corporation and its
subsidiaries) was incorporated in Massachusetts in 1981. Its principal
executive offices are located at One Vision Drive, Natick, Massachusetts
01760 and its telephone number is (508) 650-3000.
The Company designs, develops, and markets a family of machine vision
systems that are used to replace human vision in a wide range of
manufacturing processes. These high-level systems consist of sophisticated
image analysis software and high-speed, special-purpose computers (vision
engines) which, when connected to a video camera, interpret and generate
information about video images. For example, a Cognex machine vision system
can locate an object, read alphanumeric characters, detect flaws, or measure
dimensions.
Machine vision systems are used in a variety of industries including the
semiconductor, electronics, automotive, consumer products, packaging,
pharmaceutical, healthcare, metals, and paper industries for applications in
which human vision is inadequate due to fatigue, visual acuity or speed, or
in instances where substantial cost savings are obtained through the
reduction of direct labor and improved product quality. Today, many types of
manufacturing equipment require machine vision because of the increasing
demands for speed and accuracy in manufacturing processes, as well as the
decreasing geometries of items being manufactured.
WHAT IS MACHINE VISION?
In a typical machine vision application, a video camera positioned on the
production line captures an image of the part to be inspected. The machine
vision computer then uses sophisticated image analysis software to extract
information from the image and provide an answer to a question. Cognex
machine vision systems can answer four types of questions:
<TABLE>
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QUESTION DESCRIPTION EXAMPLE
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GUIDANCE
Where is it? Determining the exact physical Determining the position of a printed circuit board
location of an object. so that a robot can automatically be guided to insert
electrical components.
IDENTIFICATION
What is it? Identifying an object by analyzing Identifying the serial number on an automotive
its shape or by reading a serial airbag so that it can be tracked and processed
number on it. correctly through manufacturing.
INSPECTION
How good is it? Inspecting an object for flaws or Inspecting the quality of printing on pharmaceutical
defects. labels and packaging.
GAUGING
What size is it? Determining the dimensions of an Determining the diameter of a bearing prior to final
object. assembly.
</TABLE>
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Once the machine vision system has processed the image and made any
necessary analysis, the result is then communicated to other equipment on the
factory floor, such as an industrial controller, a robotic arm, a deflector
which removes the part from the line, a positioning table that moves the
part, or alternatively, to a computer file for analysis or subsequent process
control. This process is repeated for each part on the line, or continuously
for process material, as it moves into position in front of the camera.
Machine vision systems can perform inspections quickly enough to keep pace
with machines that process thousands of items or material feet per minute,
thus increasing both quality and productivity.
THE MACHINE VISION MARKET
The machine vision market can be segmented into two categories: original
equipment manufacturers (OEMs) and the factory floor. The factory floor can
be further subdivided between system integrators and end users. OEMs are
companies that build standard products sold as capital equipment for the
factory floor. These customers, most of which are in the semiconductor and
electronics industries, have the technical expertise to build Cognex's
programmable, board-level machine vision systems directly into their
products, which are then sold to end users.
System integrators are companies that create complete, automated
inspection solutions for end users on the factory floor in a variety of
industries. For example, they combine lighting, conveyors, robotics, machine
vision, and other components to produce custom inspection systems for various
applications. Because system integrators encounter a broad range of
automation problems, they purchase a variety of Cognex products, from
progammable systems to application-specific solutions tailored to solve
particular manufacturing tasks.
End users are companies that manufacture products, such as radios, phones,
and ball-point pens, on the factory floor. While they may purchase capital
equipment containing machine vision or contract a system integrator to build
an inspection system, many end users choose to purchase machine vision
directly to solve specific applications on their production lines. Unlike
OEMs and system integrators, these customers typically have little or no
computer programming or machine vision experience.
BUSINESS STRATEGY
The Company's goal is to expand its position as a leading worldwide
supplier of machine vision systems for factory automation. The Company's
current products are designed for factory automation because the Company
believes that this market currently offers the greatest opportunity for
selling high value-added, standard products in high volume. Within the
factory automation market, the Company has historically focused primarily on
those customers who must have machine vision because of the increasing
complexity of their products or manufacturing methods.
Emphasizing high value-added products and applications is important to the
Company's strategy, because not every segment of the machine vision market
offers opportunity for sustained profitability. High value added is realized
in the Company's products in several ways. The primary value added comes from
offering unique vision software algorithms which solve challenging problems
better than competing products. The other major mode of realizing high value
added is by offering products which are complete solutions to known problems,
incorporating all of the necessary vision software, applications software,
hardware, and electro-optics. Both modes of realizing high value added
require the Company to maintain an industry-leading level of investment in
research, development and engineering.
Within the factory automation market, the Company has tailored its product
and support offerings to match the characteristics of its two major segments:
OEMs and the factory floor. Historically, the OEM segment has been the source
of the majority of the Company's sales. However, the Company believes that
the factory floor segment has the potential in the long term to be many times
larger than
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the OEM segment. Consequently, the Company has invested heavily in developing
and acquiring products which meet the needs of the factory floor market, and
in developing a strong worldwide direct sales and support infrastructure. The
Company will continue to invest in both segments of the market, defending its
strong position in the OEM segment while expanding in the factory floor
segment.
The Company has historically pursued a global business strategy,
investing in building a strong direct presence in North America, Japan,
Europe, and Southeast Asia. Approximately 55% of the Company's revenue comes
from markets outside of the United States. In all of these regions, the
Company is acknowledged to be a leading machine vision supplier. The Company
expects to continue to invest in the expansion of direct sales, support,
local marketing, and local engineering in all of these regions.
The factory automation market for machine vision is comprised of many
market niches defined by differing applications requirements, industry, and
cost/performance. The Company's business strategy includes selective
expansion into other industrial machine vision applications. This expansion
is driven both by the internal development of new products and the
acquisition of companies and technologies. In July 1995, the Company acquired
Acumen, Inc. ("Acumen"), a developer of machine vision systems for
semiconductor wafer identification, and in February 1996, the Company
acquired Isys Controls, Inc. ("Isys"), a developer of machine vision systems
for high-speed surface inspection. These acquisitions gave Cognex an
immediate and strong presence in the growing niche markets for semiconductor
wafer identification and high-speed surface inspection.
PRODUCTS
The Company develops and sells a wide range of standard machine vision
products - proprietary vision software together with vision hardware (vision
engines) - which require minimal customization and support by the Company.
The machine vision systems sold by the Company are defined as either general-
purpose or application-specific products. General-purpose machine vision
products enable customers to solve a wide range of problems. Customers select
the tools necessary to solve their vision problem from the Company's vision
software library and configure their solution by either writing a C-language
program or utilizing a graphical user interface (GUI). Application-specific
machine vision products are "packaged" combinations of software and hardware
that are designed to solve targeted problems without any customization by the
Company or its customers. All of the Company's current products are on-line
systems that run at production speeds and locate images in a two-dimensional
scene. A typical Cognex machine vision system, including software and
hardware, ranges from $7,500 to $20,000; however, the Company's Web
Inspection Systems range from $250,000 to $2,000,000. The Company estimates
that it had sold an aggregate of approximately 52,000 machine vision systems
as of December 31, 1996.
GENERAL-PURPOSE MACHINE VISION SYSTEMS
Programmable Vision Engines
Cognex Programmable Vision Engines (PVEs) are board-level vision systems
programmable in C-language. PVEs are comprised of software and hardware
"building blocks" that enable customers to construct solutions tailored to
their application needs. The Company offers a library of vision software
tools that locate patterns, inspect for defects, measure geometric
properties, and identify parts. The hardware is a family of vision computers,
each of which contains an on-board central processing unit (CPU) and
co-processor, image capture mechanism, memory, and input/output connector,
enabling the host computer to off-load all vision tasks to the vision
processor. Customers first choose the most appropriate software tools from
the vision software library and then select the hardware platform that
satisfies their speed and price requirements. To create a vision solution,
users write a C-language program that connects the software blocks
appropriate for their vision tasks and then run the application on the
hardware platform. Customers are given the flexibility to configure their own
vision solutions to a broad range of complex vision problems without detailed
support from the Company. Cognex vision hardware is functionally and software
compatible across product lines,
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allowing customers to readily upgrade to higher performance systems or to
change platforms as application needs change.
The Company currently offers the Cognex 4000 Series, which plugs directly
into a VME backplane, and the Cognex 5000 Series, which is for personal
computers (PCs). PVEs are sold primarily to OEMs located in the United States
and Japan who integrate the vision engines into manufacturing equipment for
the semiconductor and electronics industries. PVEs are also sold to system
integrators located principally in North America, Japan, Europe, and
Southeast Asia, who integrate the vision engines into manufacturing equipment
for the factory floor in industries ranging from automotive to
pharmaceutical.
During 1996, the Company offered the VisionPro product line to satisfy
an increasing demand for lower-cost, software-only solutions. The Company has
added increased functionality to the product and has recently focused its
selling and marketing efforts toward OEMs and system integrators who require
lower-cost machine vision systems to run simpler applications.
"Point and Click" Programmable Systems
The Checkpoint family of vision systems (the Checkpoint 600 for the PC
and the Checkpoint 800 which plugs directly into a VME backplane) is designed
for manufacturing engineers who do not program in C-language and who are
looking for a rapid application development environment. Checkpoint combines
the Company's existing vision software and standard vision hardware platforms
with a unique Microsoft Windows-based GUI. Manufacturing engineers utilize
pull-down menus and dialog boxes in the GUI to create customized vision
applications. This "point and click" programming environment enables the
developer to focus on tasks associated with solving the overall vision
application, freeing the developer from the detail and complexity of
programming in C-language. The library of vision tools currently available
with Checkpoint enables users to solve a wide range of inspection, gauging,
assembly verification, and defect detection problems.
The Company introduced Checkpoint in 1994 for the factory floor market.
Checkpoint is sold primarily to end users and system integrators located in
North America, Japan, Europe, and Southeast Asia in a wide range of
general manufacturing industries, such as manufacturers of medical devices,
batteries, power tools, disposable consumer goods, and electronic components.
Although the application environment is designed for engineers with little
programming or machine vision experience, deployment of Checkpoint on the
factory floor requires the services of trained system integrators to
mechanically and electrically integrate Checkpoint into manufacturing lines.
APPLICATION-SPECIFIC MACHINE VISION SYSTEMS
Application-specific products are "packaged" combinations of software and
hardware that are designed to solve targeted problems without any
customization by the Company or its customers. The Company's
application-specific products are designed to address particular requirements
of certain vision applications and are sold to OEMs, system integrators, and
end users worldwide. A list of application-specific products is as follows:
Web Inspection Systems perform high-speed surface inspection on a variety
of materials manufactured on continuous sheets or "webs." These systems are
more hardware intensive than other Cognex products and include lighting,
custom line-scan cameras, and a multi-board vision processing system along
with the operator workstation. Each system is individually configured by the
Company's Isys subsidiary to satisfy the customer's specific requirements.
Surface Mount Device Placement Guidance Package (SMD/PGP), when coupled
with a Cognex 4000 or 5000 Series machine vision engine, quickly and
accurately locates fiducial marks on printed circuit boards for alignment,
inspects the quality of SMD devices, and then guides placement of those
devices onto printed circuit boards. For high-performance lead inspection in
time-critical applications, the SMD/PGP tools have real-time image
acquisition capability, eliminating the need to stop the motion of the
placement machine in order to capture an image of a moving part.
Cognex acuReader/Optical Character Recognition (OCR) reads even the most
degraded serial numbers from semiconductor wafers with near 100% accuracy.
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Cognex acuReader/2D reads Automatic Identification Manufacturers (AIM)
standard Data Matrix symbologies. The two-dimensional codes are used as
alternative marks for identifying wafers, Integrated Circuit (IC) packages,
Liquid Crystal Display (LCD) panels, pharmaceutical packages, and for small
parts tracking applications.
Cognex acuReader/Optical Character Verification (OCV) verifies the print
produced by laser, pad, or offset printing equipment.
Cognex acuFinder locates parts, regardless of rotation and scale, and
guides robots in the assembly, sorting, and packaging of appliance,
automotive, consumer, and electronics products.
Ball Grid Array (BGA) Inspection Package inspects BGA devices for missing,
misplaced, or improperly formed solder balls.
Cognex Fiducial Finder, when coupled with a Cognex 4000 or 5000 Series
machine vision engine, locates fiducial, or alignment, marks on printed
circuit boards.
Cognex Print Quality Inspection (PQI), when coupled with a Cognex 4000 or
5000 Series machine vision engine, quickly and accurately inspects print
produced by laser, pad, or offset printing equipment.
RESEARCH, DEVELOPMENT AND ENGINEERING
The Company engages in research, development and engineering ("R, D & E")
to enhance its existing products and to develop new products and
functionality to meet market opportunities. The Company considers its
on-going efforts in R, D & E to be a key component of its strategy. Three new
technologies currently being developed by the Company include: (1) PatMax, a
new method for high accuracy, rotation and scale invariant pattern
recognition and defect detection, which is anticipated to be introduced in
the second half of 1997, (2) a digital 3D sensor, which is anticipated to be
ready for market in 1998, and (3) the Cognex 8000 Series, the next-generation
vision engine, which is anticipated to be introduced in the second half of
1997. The Company has begun to file patents on new technologies it has
developed for PatMax and the digital 3D sensor. In addition to internal
research and development efforts, the Company intends to continue its
strategy of gaining access to new technology through strategic relationships
and acquisitions where appropriate.
The R, D & E organization consists of software engineering, hardware
engineering, and research and development. Software engineering is
responsible for the development of the Company's core image processing and
image analysis tools, as well as the maintenance, quality assurance, and
documentation of software products. Dedicated teams within the software group
are responsible for the development of the VisionPro and Checkpoint product
lines, and the SMD/PGP tools, along with the development of application
products used in wire bonders and other custom applications. Hardware
engineering is responsible for the development of hardware products,
primarily vision engines and vision chips. The research and development group
focuses its energies on enhanced vision technology capabilities. The
Company's Acumen development center is responsible for the development of
application-specific products for the semiconductor industry, while the
development of Web Inspection Systems is performed by the Isys engineering
organization.
At December 31, 1996, the Company employed 132 professionals in R, D & E,
most of whom are software developers. The Company's R, D & E expenses totaled
$19,434,000, $13,190,000, and $9,933,000 in 1996, 1995, and 1994,
respectively.
MANUFACTURING
With the exception of its Web Inspection Systems, the Company's
manufacturing organization is located at its Natick, Massachusetts
headquarters. During 1996, the Company substantially completed its transition
to a turnkey manufacturing operation whereby the majority of component
procurement, subassembly, final assembly, and initial testing are performed
under agreement by a single third-party
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contractor. After the completion of initial testing, the third party
contractor delivers the products to the Company to perform final testing and
assembly. The products provided by the third party contractor are
manufactured using specified components and assembly and test documentation
created and controlled by the Company. Certain components purchased by the
third party contractor are presently available from a single source.
The Company's Web Inspection Systems are manufactured in Alameda,
California. The manufacturing process consists of systems design,
configuration management and control, component procurement, subassembly,
integration and final test, quality control, shipment, and installation.
Certain products are manufactured by third party contractors using assembly
and test documentation created and controlled by the Company. Certain
components purchased by the third party contractors are presently available
from a single source.
SALES AND SERVICE
The Company markets its products through a direct sales force in North
America, Japan, and Europe, and through a direct sales force and distributors
in Southeast Asia. The Company's distributors do not have any rights of
return, and payment for products is due upon delivery. Distributors generally
have non-exclusive distribution rights and there may be more than one
distributor per territory.
The Company's direct sales force operates in North America out of its
Natick, Massachusetts headquarters, its Regional Technology Centers in
Mountain View, California, and Naperville, Illinois, and its sales offices
throughout the United States; in Japan out of its Tokyo and Osaka offices; in
Europe out of its offices in France, Germany, England, and Italy; and
in Southeast Asia out of its Singapore and Korea offices.
At December 31, 1996, the Company's direct sales and service force
consisted of 91 professionals, including sales and application engineers. The
majority of the Company's sales and service personnel have engineering or
science degrees. Sales engineers call directly on targeted accounts and
coordinate the activity of the application engineers. They focus on potential
customers that represent possible volume purchases and long-term
relationships. Opportunities that represent single unit sales or turnkey
system requirements are identified by the sales engineer and turned over to
an independent system integrator or OEM that uses the Company's products.
Sales to international customers represented approximately 55%, 59%, and
62% of revenue in 1996, 1995, and 1994, respectively. One international
customer based in Japan, Fuji America Corporation, accounted for
approximately 11%, 16%, and 20% of revenue in 1996, 1995, and 1994,
respectively. Segment information, including information about foreign and
domestic operations, export sales, and significant geographic areas, may
be found in the Notes to the Consolidated Financial Statements, appearing on
pages 26 and 27 of the Annual Report to Stockholders for the year ended
December 31, 1996, which is Exhibit 13 hereto, and is incorporated herein by
reference. Although international sales may from time to time be subject to
federal technology export regulations, the Company to date has not suffered
delays or prohibitions in sales to any of its foreign customers.
The Company sells its products to customers that have entered or are
expected to enter into volume discount contracts with the Company. These
contracts are typically for one year and have associated delivery schedules.
The Company provides software update services and hardware maintenance on
a contract basis. Software updates are provided via floppy disks and hardware
maintenance is provided by repairing or exchanging printed circuit boards.
Programming application services for projects can be contracted with the
Company on a time-and-material basis only when doing so enhances the sale of
the Company's standard products. Product courses are provided by the Company
at its headquarters in Natick, Massachusetts, at its offices in Japan,
France, Germany, and England, as well as at the customer site when required.
These courses provide the user with both lecture and laboratory sessions
covering the use of Cognex products.
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PATENTS AND LICENSES
Since the Company relies on the technical expertise, creativity, and
knowledge of its personnel, it utilizes patent, copyright, and trade secret
protection to safeguard its competitive position. In addition, the Company
makes use of non-disclosure agreements with customers, suppliers, employees,
and consultants. The Company attempts to protect its intellectual property by
restricting access to its proprietary information by a combination of
technical and internal security measures. However, there can be no assurance
that any of the above measures will be adequate to protect the proprietary
technology of the Company.
The Company's software products are generally licensed to customers
pursuant to a license agreement that restricts the use of the products to the
customer's purposes on a designated Cognex machine vision engine. The Company
has made portions of the source code available to certain customers under
very limited circumstances and for restricted uses. If source code is
released to a customer, the customer is required by contract to maintain its
confidentiality and, in general, to use the source code solely for internal
purposes or for maintenance. Effective patent, copyright, and trade secret
protection may be unavailable in certain foreign countries.
Several users of the Company's products have received notice of patent
infringement from Technivision Corporation and Jerome H. Lemelson alleging
that their use of the Company's products infringes certain patents issued to
Mr. Lemelson. Certain of these users have notified the Company that, in the
event it is subsequently determined that their use of the Company's products
infringes any of Mr. Lemelson's patents, they may seek indemnification from
the Company for damages or expenses resulting from this matter.
Two users of the Company's products were engaged in litigation with Mr.
Lemelson/Technivision involving certain of these patents and the validity of
these patents was placed in issue. One user entered into a settlement
agreement with Mr. Lemelson, while the second user had the allegations
dismissed by the court. Although the Company was not named in this
litigation, it entered into a joint defense agreement with one party named
therein, who subsequently entered into a settlement agreement with Mr.
Lemelson for reasons unknown to the Company. The Company is not a party to
that settlement and has no indemnification claims, or related obligations,
with respect to that settlement. Certain products sold by the Company, as
well as the products of others, were identified in connection with this
litigation, which claimed an allegedly infringing use.
In June 1995, a Magistrate Judge filed a recommendation that summary
judgment be entered in favor of the Company's other user that was engaged in
the aforementioned litigation with Mr. Lemelson/Technivision. This
recommendation, which was accepted by the U.S. District Court of Nevada in
April 1996, disposed of all the actions in favor of the user in this case.
The Company, however, cannot predict the outcome of any similar litigation
which may arise in the future, or the effect of such litigation on the
operating results of the Company. The Company does not believe its products
infringe any valid and enforceable claims of Mr. Lemelson's patents.
COMPETITION
The Company competes with other vendors of machine vision systems, the
internal engineering efforts of the Company's current or prospective
customers, and the manufacturers of image processing systems. Any of these
competitors may have greater financial and other resources than the Company.
Although, the Company considers itself to be one of the leading machine
vision companies in the world, reliable estimates of the machine vision
market and the number of competitors are almost non-existent, primarily
because of definitional confusion and a tendency toward double-counting of
sales. The primary competitive factors affecting the choice of a machine
vision system include product functionality and performance (e.g. speed,
accuracy, and reliability) under real-world operating conditions,
flexibility, programmability, and the availability of application support
from the vendor. More recently, ease-of-use
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has become a competitive factor and product price has become a more
significant factor with respect to simpler guidance and gauging applications.
The Company competes with the lower-cost, software-only solutions being
introduced by various competitors on the basis of superior performance and
price, rather than on price alone, through its VisionPro product line.
BACKLOG
At December 31, 1996, the Company's backlog totaled $26,835,000, compared
to $27,655,000 at December 31, 1995. Backlog reflects purchase orders for
products scheduled for shipment within six months. The level of backlog at
any particular date is not necessarily indicative of the future operating
performance of the Company. Delivery schedules may be extended and orders may
be canceled at any time subject to certain cancellation penalties.
EMPLOYEES
At December 31, 1996, the Company employed 404 persons, including 148 in
sales, marketing and support activities; 132 in research, development and
engineering; 54 in manufacturing and quality assurance; and 70 in management,
administration and finance. Of the Company's 404 employees, 43 are located in
Japan. None of the Company's employees are represented by a labor union and
the Company has experienced no work stoppages. The Company believes that its
employee relations are good.
ITEM 2: PROPERTIES
In 1994, the Company purchased and renovated a 100,000 square-foot
building located in Natick, Massachusetts. The Company's corporate
headquarters, principal administrative, sales and marketing, research,
development and engineering, manufacturing and quality assurance, and support
personnel are located in this facility. In addition, the Company leases
facilities in the United States in California, Illinois, and Oregon, as well
as in Japan, France, Germany, England, Italy, Singapore, and Korea.
In 1995, the Company purchased an 83,000 square-foot office building
adjacent to its corporate headquarters. The building is currently occupied
with tenants who have lease agreements that expire at various dates through
the year 2000, at which point, the Company plans to take occupancy of the
building.
In 1995, the Company began work on a 50,000 square-foot expansion of its
corporate headquarters, which was completed during the first quarter of 1997.
However, since the Company's planned hiring over the next several quarters is
substantially less than anticipated when construction commenced, occupancy of
this additional space, along with the related operating costs, will be
delayed until the additional space is needed, which is anticipated to be late
1997 or early 1998.
ITEM 3: LEGAL PROCEEDINGS
To the Company's knowledge, there are no pending legal proceedings, other
than as described in "Business - Patents and Licenses," which are material to
the Company to which it is a party or to which any of its property is
subject. From time to time, however, the Company may be subject to various
claims and lawsuits by customers and competitors arising in the normal course
of business, including suits charging patent infringement.
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ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the year
ended December 31, 1996 to a vote of security holders through solicitation of
proxies or otherwise.
ITEM 4A: EXECUTIVE OFFICERS AND OTHER MEMBERS OF THE MANAGEMENT TEAM OF
THE REGISTRANT
The following table sets forth the names, ages, and titles of the
Company's executive officers at December 31, 1996:
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NAME AGE TITLE
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Robert J. Shillman 50 President, Chief Executive Officer, and Chairman of the Board
of Directors
Patrick A. Alias 51 Executive Vice President of Sales and Marketing
John J. Rogers, Jr. 38 Executive Vice President, Chief Financial Officer, and Treasurer
Richard B. Snyder 53 Executive Vice President of Engineering
</TABLE>
Messrs. Shillman, Alias, Rogers, and Snyder have been employed by the
Company in their present or other capacities for no less than the past five
years.
Executive officers are elected annually by the Board of Directors. There
are no family relationships among the directors and the executive officers of
the Company.
9
<PAGE> 12
OTHER MEMBERS OF THE MANAGEMENT TEAM
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Eric Ceyrolle 43 Vice President of European Operations
Marilyn Matz 43 Vice President of Software Engineering
E. John McGarry 40 Vice President of Development: Application Specific
Accelerated Products, President and Chief Technical
Officer of Acumen
Kris Nelson 49 Vice President of North American Sales
Hironobu Ohgusu 57 President of Cognex K.K.
Richard Rombach 40 President of Isys Controls, Inc.
Henk Schalke 51 Vice President of Engineering
David Schatz 39 Vice President of Corporate Development
William Silver 42 Vice President of Research and Development
Justin Testa 44 Vice President of Marketing
</TABLE>
Ms. Matz and Messrs. Nelson, Schalke, Schatz, Silver, and Testa have been
employed by the Company in their present or other capacities for no less than
the past five years.
Mr. Ceyrolle joined the Company in 1992 as General Manager of European
Operations and was promoted to his current position in 1996. From 1988 to
1992, he served as General Manager of Southern European Operations for
Modcomp Corp, a real-time system supplier.
Mr. McGarry joined the Company in 1995 when the company he founded in
1991, Acumen, Inc., was acquired by Cognex. From 1991 to 1995, he served as
President of Acumen, Inc., a developer of machine vision systems for
semiconductor wafer identification.
Mr. Ohgusu joined the Company in 1992 as President of Cognex K.K., the
Company's Japanese subsidiary. From 1989 to 1992, he served as President and
CEO of Lonrho International Network Ltd., a manufacturer of computer
diagnostic software.
Mr. Rombach joined the Company in 1996 when the company he founded in
1989, Isys Controls, Inc., was acquired by Cognex. From 1989 to 1996, he
served as President of Isys Controls, Inc., a developer of machine vision
systems for high-speed surface inspection.
10
<PAGE> 13
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Certain information with respect to this item may be found in the section
captioned "Selected Quarterly Financial Data," appearing on page 31, and the
section captioned "Company Information," appearing on page 32 of the Annual
Report to Stockholders for the year ended December 31, 1996, which is Exhibit
13 hereto, and is incorporated herein by reference.
The Company has never declared or paid cash dividends on shares of common
stock. The Company currently intends to retain all of its earnings to finance
the development and expansion of its business and therefore does not intend
to declare or pay cash dividends on its common stock in the foreseeable
future. Any future declaration and payment of dividends will be subject to
the discretion of the Company's Board of Directors, will be subject to
applicable law, and will depend upon the Company's results of operations,
earnings, financial condition, contractual limitations, cash requirements,
future prospects, and other factors deemed relevant by the Company's Board of
Directors.
ITEM 6: SELECTED FINANCIAL DATA
Information with respect to this item may be found in the section
captioned "Five-Year Summary of Selected Financial Data," appearing on page
30 of the Annual Report to Stockholders for the year ended December 31, 1996,
which is Exhibit 13 hereto, and is incorporated herein by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information with respect to this item may be found in the section
captioned "Management's Discussion and Analysis of Financial Condition and
Results of Operations," appearing on pages 8 through 12 of the Annual Report
to Stockholders for the year ended December 31, 1996, which is Exhibit 13
hereto, and is incorporated herein by reference.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item, which includes the consolidated
financial statements and notes thereto, report of independent accountants,
and supplementary data, may be found on pages 13 through 31 of the Annual
Report to Stockholders for the year ended December 31, 1996, which is Exhibit
13 hereto, and is incorporated herein by reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting
or financial disclosure during 1996 or 1995.
11
<PAGE> 14
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Company may be found in the
section captioned "Election of Directors," appearing in the definitive Proxy
Statement for the Special Meeting in Lieu of the 1997 Annual Meeting of
Stockholders to be held on April 22, 1997. Such information is incorporated
herein by reference. Information with respect to Executive Officers of the
Company may be found in the section captioned "Executive Officers and Other
Members of the Management Team of the Registrant," appearing in Part I of
this Annual Report on Form 10-K.
ITEM 11: EXECUTIVE COMPENSATION
Information with respect to this item may be found in the sections
captioned "Information Concerning the Board of Directors,"
"Compensation/Stock Option Committee Report on Executive Compensation,"
"Comparison of Five Year Cumulative Total Returns Performance Graph for
Cognex Corporation," and "Executive Compensation," appearing in the
definitive Proxy Statement for the Special Meeting in Lieu of the 1997 Annual
Meeting of Stockholders to be held on April 22, 1997. Such information is
incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item may be found in the sections
captioned "Principal Holders of Voting Securities" and "Security Ownership of
Directors and Officers," appearing in the definitive Proxy Statement for the
Special Meeting in Lieu of the 1997 Annual Meeting of Stockholders to be held
on April 22, 1997. Such information is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
12
<PAGE> 15
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following consolidated financial statements of Cognex
Corporation and the report of independent accountants relating
thereto are included in the Company's Annual Report to
Stockholders for the year ended December 31, 1996, which is
Exhibit 13 hereto, and is incorporated herein by reference:
Report of Independent Accountants
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
Included at the end of this report are the following:
Report of Independent Accountants on the Financial Statement
Schedule
Schedule II - Valuation and Qualifying Accounts
Other schedules are omitted because of the absence of conditions
under which they are required or because the required
information is given in the consolidated financial statements or
notes thereto.
(3) Exhibits
The Exhibits filed as part of this Annual Report on Form 10-K
are listed in the Exhibit Index appearing on page 17,
immediately preceding such Exhibits.
(b) Reports on Form 8-K
There were no Reports on Form 8-K filed during the fourth
quarter of the year ended December 31, 1996.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
COGNEX CORPORATION
/s/ Robert J. Shillman
----------------------
Robert J. Shillman
(President, Chief Executive Officer, and Chairman
of the Board of Directors)
March 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert J. Shillman President, Chief Executive Officer, March 24, 1997
------------------------------- and Chairman of the Board of Directors
Robert J. Shillman (principal executive officer)
/s/ John J. Rogers, Jr. Executive Vice President, Chief Financial March 24, 1997
------------------------------- Officer, and Treasurer
John J. Rogers, Jr. (principal financial and accounting officer)
/s/ William Krivsky Director March 24, 1997
-------------------------------
William Krivsky
/s/ Anthony Sun Director March 24, 1997
-------------------------------
Anthony Sun
/s/ Rueben Wasserman Director March 24, 1997
-------------------------------
Rueben Wasserman
</TABLE>
14
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Cognex Corporation:
Our report on the consolidated financial statements of Cognex Corporation
has been incorporated by reference in this Form 10-K from page 29 of the 1996
Annual Report to Stockholders of Cognex Corporation. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule for each of the three years in the period ended December 31,
1996 listed in Item 14(a) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 28, 1997
15
<PAGE> 18
SCHEDULE II
COGNEX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
DESCRIPTION of Period Expenses Accounts Deductions Period
----------- --------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
1996 $709 $ 542 - $ (283) (a) $ 968
1995 684 25 - - 709
1994 597 159 - (72) (a) 684
Reserve for Inventory Obsolescence
1996 $541 $4,361 - $(2,629) (b) $2,273
1995 599 - - (58) (b) 541
1994 251 360 - (12) (b) 599
</TABLE>
(a) Specific write-offs
(b) Specific dispositions
16
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER
- --------------
<S> <C> <C>
2A Stock Purchase Agreement dated as of July 21, 1995 among
Acumen, Inc., the Shareholders of Acumen, Inc., and Cognex
Corporation (incorporated by reference to Exhibit 2 to the
Current Report on Form 8-K filed on October 4, 1995)
2B Agreement and Plan of Merger dated as of February 29, 1996
among Cognex Corporation, Cognex Software Development,
Inc., Isys Controls, Inc., and Richard Rombach
(incorporated by reference to Exhibit 2 to the Current
Report on Form 8-K filed on March 15, 1996)
3A Articles of Organization of the Company effective January
8, 1981, as amended June 8, 1982, August 19, 1983, May 15,
1984, April 17, 1985, November 4, 1986, and January 21,
1987 (incorporated by reference to Exhibit 3A to the
Registration Statement Form S-1 [Registration No.
33-29020])
3B Restated Articles of Organization of the Company effective
June 27, 1989, as amended April 30, 1991, April 21, 1992,
April 25, 1995, and April 23, 1996 *
3C By-laws of the Company as amended February 9, 1990 (filed
as Exhibit 3C to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990)
4 Specimen Certificate for Shares of Common Stock
(incorporated by reference to Exhibit 4 to the Registration
Statement Form S-1 [Registration No. 33-29020])
10A Cognex Corporation Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4A to Amendment No. 1
to the Registration Statement Form S-8 [Registration No.
33-32815])
10B Cognex Corporation 1992 Director's Stock Option Plan (filed
as Exhibit 10I to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992)
10C Cognex Corporation 1993 Director's Stock Option Plan
(filed as Exhibit 10J to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993)
10D Cognex Corporation 1993 Employee Stock Option Plan,
as amended May 28, 1996 (incorporated by reference to
Exhibit 4A to the Registration Statement on Form S-8
[Registration No. 333-4621])
10E Cognex Corporation 1996 Long-Term Incentive Plan
(incorporated by reference to Exhibit 4A to the
Registration Statement Form S-8 [Registration No.
333-2151])
10F Purchase and Sale Agreement with respect to the Natick
Executive Park facility dated as of June 30, 1995 (filed as
Exhibit 10G to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995)
11 Statement re computation of per share earnings *
13 Annual Report to Stockholders for the year ended December
31, 1996 (which is not deemed to be "filed" except to the
extent that portions thereof are expressly incorporated by
reference in this Annual Report on Form 10-K) *
21 Subsidiaries of the registrant *
23 Consent of Coopers & Lybrand L.L.P. *
27 Financial Data Schedule (electronic filing only) *
* Filed herewith
</TABLE>
17
<PAGE> 1
The Commonwealth of Massachusetts
- ---------- FEDERAL IDENTIFICATION
Examiner MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASS: 02108 No. 04-2713778
----------
RESTATED ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER 156B, SECTION 74
This certificate must be submitted to the Secretary of the
Commonwealth within sixty days after the date of the vote of stockholders
adopting the restated articles of organization. The fee for filing this
certificate is prescribed by General Laws, Chapter 156B, Section 114. Make
check payable to the Commonwealth of Massachusetts.
----------
We, Robert J. Shillman , President/, and
Anthony J. Medaglia, Jr. , Clerk/ of
COGNEX CORPORATION
---------------------------------------------------------------------------
(Name of Corporation)
located at 15 Crawford Street, Needham, Massachusetts 02194
----------------------------------------------------------------
do hereby certify that the following restatement of the articles of
organization of the corporation was duly adopted at a meeting held on June
27 , 1989, by vote of
<TABLE>
<S> <C> <C> <C>
3,699,107 shares of Class A Common out of 4,785,114 shares outstanding,
--------- -------------------- ---------
(Class of Stock)
21,802 shares of Series A Preferred out of 21,802 shares outstanding, and
--------- -------------------- ---------
(Class of Stock)
10,000 shares of Series B Preferred out of 10,000 shares outstanding,*
--------- -------------------- ---------
(Class of Stock)
</TABLE>
being at least two-thirds of each class of stock outstanding and entitled
to vote and of each class or series of stock adversely affected thereby:
1. The name by which the corporation shall be known is:
COGNEX CORPORATION
2. The purposes for which the corporation is formed are as follows:
C | | See Page A-1 attached hereto.
P | |
M | |
RA | | *and 78,504 shares of Series C Preferred out of 78,504 shares
outstanding, and 466,668 shares of Series D Preferred out of
500,002 shares outstanding,
- ----------
P.C.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions
to more than one article may be continued on a single sheet so long as each
article requiring each such addition is clearly indicated.
<PAGE> 2
<TABLE>
3. The total number of shares and the par value, if any, of each class
of stock which the corporation is authorized to issue is as follows:
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
----------------- --------------
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
- -------------- ---------------- ---------------- ---------
<S> <C> <C> <C>
Preferred - 400,000 $ .01
Common - 10,000,000 $.002
</TABLE>
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges as to
each class thereof and any series now established:
See Pages B-1 thru B-5 attached hereto.
*5. The restrictions, if any, imposed by the articles of organization upon
the transfer of shares of stock of any class are as follows:
None.
*6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary
dissolution, or for limiting, defining, or regulating the powers of
the corporation, or of its directors or stockholders, or of any class
of stockholders:
See Pages C-1 thru C-12 attached hereto.
* If there are no such provisions, state "None".
<PAGE> 3
2. The purpose for which the corporation is formed is as follows: To
manufacture, invent, design, develop and to engage in research and consulting
work in connection with the production of products for data processors for
offices and other markets; to invent, design, discover, or acquire formulae,
processes, improvements, inventions, designs, patents, licenses, copyrights,
trademarks, trade names and trade secrets applicable to the foregoing and to
hold, use, sell, license and otherwise deal in or dispose of the same; to
acquire by purchase, deed, mortgage, lease or by any other method and to hold,
maintain, operate, improve, develop, sell, exchange, lease, mortgage, pledge,
hypothecate, loan money upon and otherwise deal in real and personal property of
every kind, character and description and wheresoever situated, including
without limitation the stock and securities of the corporation or of any other
corporation; to lend money upon, credit or security to, to guarantee or assume
obligations of, and to aid in any other manner other concerns wherever and
however organized, any obligations of which or any interest in which shall be
held by the corporation or in the affairs or prosperity of which the corporation
has a lawful interest and to do all acts and things designed to protect, improve
and enhance the value of such obligations and interests; and to carry on any
business permitted and enjoy all rights and powers granted by the Commonwealth
of Massachusetts to a corporation organized under Chapter 156B of the General
Laws, as amended.
- A-1 -
<PAGE> 4
4. DESCRIPTION OF CAPITAL STOCK
----------------------------
A. AUTHORIZED SHARES. The aggregate number of shares which this
Corporation shall have authority to issue is: 10,000,000 shares of common stock
having a par value of $.002 per share (the "Common Stock") and 400,000 shares of
preferred stock having a par value of $.01 per share (the "Series Preferred
Stock").
B. SERIES PREFERRED STOCK. Shares of Series Preferred Stock may be issued
from time to time in one or more series as may from time to time be determined
by the Board of Directors, each of said series to be distinctly designated. All
shares of any one series of the Series Preferred Stock shall be alike in every
particular, except that there may be different dates from which dividends, if
any, thereon shall be cumulative, if made cumulative. The voting powers, if any,
and the designations, preferences and relative, participating, optional or other
special rights or privileges of each such series, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding; and, subject to the provisions of
subparagraph 1 of Paragraph D hereof, there is hereby expressly vested in the
Board of Directors of the Corporation the authority to issue one or more series
of the Series Preferred Stock and to fix in the resolution or resolutions
providing for the issue of such stock adopted by the Board of Directors of the
Corporation the voting powers, if any, and the designations, preferences and
relative, participating, optional or other special rights or privileges, and the
qualifications, limitations or restrictions of such series, including, but
without limiting the generality of the foregoing, the following:
(1) The distinctive designation of, and the number of shares of the series
Preferred Stock which shall constitute such series. The designation of a
series of preferred stock need not include the words "preferred" or
"preference" and may be designated "special" or other distinctive term.
Unless otherwise provided in the resolution issuing such series, the number
of shares of any series of the Series Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by
the Board of Directors in the manner prescribed by law;
(2) The rate and times at which, and the terms and, conditions upon which,
dividends, if any, on the Series Preferred Stock of such series shall be
paid,
- B-1 -
<PAGE> 5
the extent of the preference or relation, if any, of such dividends to the
dividends payable on any other class or classes, or series of the same or
other classes of stock and whether such dividends shall be cumulative or
non-cumulative and, if cumulative, the date from which such dividends shall
be cumulative;
(3) Whether the series shall be convertible into, or exchangeable for, at
the option of the holders of the Series Preferred Stock of such series or
the Corporation or upon the happening of a specified event, shares of any
other class or classes or any other series of the same or any other class
or classes of stock of the Corporation, and the terms and conditions of
such conversion or exchange, including provisions for the adjustment of any
such conversion rate in such events as the Board of Directors shall
determine;
(4) Whether or not the Series Preferred Stock of such series shall be
subject to redemption at the option of the Corporation or the holders of
such series or upon the happening of a specified event, and the redemption
price or prices and the time or times at which, and the terms and
conditions upon which, the Series Preferred Stock of such series may be
redeemed;
(5) The rights, if any, of the holders of the Series Preferred Stock of
such series upon the voluntary or involuntary liquidation, merger,
consolidation, distribution or sale of assets, dissolution or winding-up,
of the Corporation;
(6) The terms of the sinking fund or redemption or purchase account, if
any, to be provided for the Series Preferred Stock of such series; and
(7) Subject to subparagraph 5 of Paragraph D hereof, whether such series
of the Series Preferred Stock shall have full, limited or no voting powers
including, without limiting the generality-of the foregoing, whether such
series shall have the right, voting as a series by itself or together with
other series of the Series Preferred Stock or all series of the Series
Preferred Stock as a class, to elect one or more directors of the
Corporation if there shall have been a default in the payment
- B-2 -
<PAGE> 6
of dividends on any one or more series of the Series Preferred Stock or
under such other circumstances and on such conditions as the Board of
Directors may determine.
C. COMMON STOCK.
(1) After the Corporation has complied with the requirements, if any,
fixed in accordance with the provisions of Paragraph B hereof with respect
to (a) dividends on series of the Series Preferred Stock (in accordance
with the relative preferences among such series) and (b) the setting aside
of sums as sinking funds or redemption or purchase accounts for series of
the Series Preferred Stock (in accordance with the relative preferences
among such series), and subject further to any other conditions which may
be fixed in accordance with the provisions of Paragraph B hereof, then, and
not otherwise, the holders of Common Stock shall be entitled to receive
such dividends (either in cash, stock or otherwise) as may be declared from
time to time by the Board of Directors out of assets of the Corporation
legally available therefor and the holders of the Series Preferred Stock
shall not be entitled to participate in any such dividends.
(2) After distribution in full of the preferential amount, if any, to be
distributed to the holders of series of the Series Preferred Stock (in
accordance with the relative preferences among such series) in the event of
voluntary or involuntary liquidation, distribution, dissolution or
winding-up, of the Corporation, the holders of the Common Stock shall be
entitled to receive all of the remaining assets of the Corporation,
tangible and intangible, of whatever kind available for distribution to
shareholders, ratably in proportion to the number of shares of Common Stock
held by them respectively.
(3) Except as may otherwise be required by law, each holder of Common
Stock shall have one vote in respect of each share of Common Stock held by
him on all matters voted upon by the shareholders.
D. OTHER PROVISIONS.
(1) No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series
of stock or of
- B-3 -
<PAGE> 7
other securities of the Corporation shall have any preemptive right to
purchase or subscribe for any unissued stock of any class or series or any
additional shares of any class or series to be issued by reason of any
increase of the authorized capital stock of the Corporation of any class or
series, or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock of the Corporation of
any class or series, or carrying any right to purchase stock of any class
or series, but any such unissued stock, additional authorized issue of
shares of any class or series of stock or securities convertible into or
exchangeable for stock, or carrying any right to purchase stock, may be
issued and disposed of pursuant to resolution of the Board of Directors to
such persons, firms, corporations or associations (including such holders
or others) and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(2) The relative powers, preferences and rights of each series of the
Series Preferred Stock in relation to the powers, preferences and rights of
each other series of the Series Preferred Stock shall, in each case, be as
fixed from time to time by the Board of Directors in the resolution or
resolutions adopted pursuant to authority granted in Paragraph B hereof.
The consent, by class or series vote or otherwise, of the holders of such
of the series of the Series Preferred Stock as are from time to time
outstanding shall not be required for the issuance by the Board of
Directors of any other series of the Series Preferred Stock whether or not
the powers, preferences and rights of such other series shall be fixed by
the Board of Directors as senior to, or on a parity with, the powers,
preferences and rights of such outstanding series, or any of them;
provided, however, that the Board of Directors may provide in the
resolution or resolutions as to any series of the Series Preferred Stock
adopted pursuant to Paragraph B hereof, the conditions if any, under which
the consent of the holders of a majority (or such greater proportion as
shall be fixed therein) of the outstanding shares of such series shall be
required for the issuance of any or all other series of the Series
Preferred Stock.
(3) Subject to the provisions of subparagraph 2 of this Paragraph D,
shares of any series of the Series Preferred Stock may be issued from time
to time as the Board of Directors of the Corporation shall determine and on
such terms and for such consideration as shall be fixed by the Board of
Directors.
(4) Shares of authorized Common Stock may be issued from time to time as
the Board of Directors of the Corporation shall determine and on such terms
and for such consideration as shall be fixed by the Board of Directors.
- B-4 -
<PAGE> 8
(5) The number of authorized shares of Common Stock and of the Series
Preferred Stock, without a class or series vote, may be increased or
decreased from time to time (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a majority of
the stock of the Corporation entitled to vote thereon.
- B-5 -
<PAGE> 9
6. Other lawful provisions for the conduct and regulation of the business
and affairs of the corporation, for its voluntary dissolution or for limiting,
defining or regulating the powers of the corporation, or of its directors or
stockholders, or of any class of stockholders:
No Director or officer shall be disqualified by his office from dealing or
contracting as vendor, purchaser or otherwise, whether in his individual
capacity or through any other corporation, trust, association or firm in which
he is interested as stockholder, director, trustee, partner or otherwise, with
the corporation or any corporation, trust, association or firm in which the
corporation shall be a stockholder or otherwise interested or which shall hold
stock or be otherwise interested in the corporation, nor shall any such dealing
or contract be avoided, nor shall any Director or officer so dealing or
contracting be liable to account for any profit or benefit realized through any
such dealing or contract to the corporation or to any stockholder or creditor
thereof solely because of the fiduciary relationship established by reason of
his holding such Directorship or office. Any such interest of a Director shall
not disqualify him from being counted in determining the existence of a quorum
at any meeting nor shall any such interest disqualify him from voting or
consenting as a Director or having his vote or consent counted in connection
with any such dealing or contract.
No stockholder shall be disqualified from dealing or contracting as vendor,
purchaser or otherwise, either in his individual capacity or through any other
corporation, trust, association or firm in which he is interested as
stockholder, director, trustee, partner or otherwise, with the corporation or
any corporation, trust, association or firm in which the corporation shall be a
stockholder or otherwise interested or which shall hold stock or be otherwise
interested in the corporation, nor shall any such dealing or contract be
avoided, nor shall any stockholder so dealing or contracting be liable to
account for any profit or benefit realized through any such contract or dealing
to the corporation or to any stockholder or creditor thereof by reason of such
stockholder holding stock in the corporation to any amount, nor shall any
fiduciary relationship be deemed to be established by such stockholding.
Meetings of the stockholders of the corporation may be held at any place
within the United States.
The corporation may be a partner in any business enterprise it would have
power to conduct by itself.
- C-1 -
<PAGE> 10
The directors may make, amend or repeal the by-laws in whole or in part,
except with respect to any provision thereof which by law, these Restated
Articles of organization or the by-laws requires action by the stockholders.
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
notwithstanding any statutory provision or other law imposing such liability,
except for liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section sixty-one or sixty-two of Chapter 156B of the
Massachusetts General Laws, or (iv) for any transaction from which the director
derived an improper personal benefit.
- C-2 -
<PAGE> 11
Classified Board of Directors
(1) The Directors of the corporation shall be divided into three classes: Class
I, Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the whole number of the Board of Directors. If the
number of Directors is not evenly divisible by three, the Board of Directors
shall determine the number of Directors to be elected initially into each class.
In the election of Directors at the Special Meeting of Stockholders in Lieu of
the 1989 Annual Meeting, the Class I Directors shall be elected to hold office
for a term to expire at the first annual meeting of the stockholders thereafter;
the Class II Directors shall be elected to hold office for a term to expire at
the second annual meeting of the stockholders thereafter; and the Class III
Directors shall be elected to hold office for a term to expire at the third
annual meeting of the stockholders thereafter, and in the case of each class,
until their respective successors are duly elected and qualified. At each annual
election held after the Special Meeting of Stockholders in Lieu of the 1989
Annual Meeting, the Directors elected to succeed those whose terms expire shall
be identified as being of the same class as the Directors they succeed and shall
be elected to hold office for a term to expire at the third annual meeting of
the stockholders after their election, and until their respective successors are
duly elected and qualified: if the number of Directors changes, any increase or
decrease in Directors shall be apportioned among the classes so as to maintain
all classes as equal in number as possible, and any additional Director elected
to any class shall hold office for a term which shall coincide with the terms of
the other Directors in such class and until his successor is duly elected and
qualified.
(2) Notwithstanding any other provisions of these Articles of Organization or
the by-laws of the corporation or the fact that a lesser percentage may be
specified by law, these Articles of Organization or the by-laws of the
corporation, the affirmative vote of the holders of at least eighty (80%)
percent of the combined voting power of the outstanding stock of the corporation
entitled to vote generally in the election of directors ("Voting Stock"), voting
together as a single class, shall be required to amend, alter, adopt any
provision inconsistent with or to repeal this provision; provided however that
if any such proposal receives the affirmative vote of each holder of at least
15% of the outstanding Voting Stock who also held at least 15% of the
outstanding Voting Stock of the corporation on May 15, 1989, then such proposal
shall require only the affirmative vote of the holders of at least a majority of
the outstanding Voting Stock of the corporation.
- C-3 -
<PAGE> 12
Vote Required for Certain Business Combinations
(A) In addition to any affirmative vote required by law or these Articles
of Organization, and except as otherwise expressly provided in Paragraph (B) of
this Provision:
1. any merger or consolidation of the corporation or any Subsidiary
(as hereinafter defined) with (a) an Interested Stockholder (as hereinafter
defined) or (b) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would be, an
Affiliate (as such term is hereinafter defined) of an Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, grant of a security
interest, transfer or other disposition (in one transaction or a series of
transactions) to or with (a) an Interested Stockholder or (b) or any other
person (whether or not itself an Interested Stockholder) which is, or after such
sale, lease, exchange, mortgage, pledge, grant of security interest, transfer or
other disposition would be, an Affiliate of an Interested Stockholder, directly
or indirectly, of substantially all of the assets of the corporation (including,
without limitation, any voting securities of a Subsidiary) or any Subsidiary; or
3. the issuance or transfer by the corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of the
corporation or any Subsidiary, or both, to (a) an Interested Stockholder or (b)
any other person (whether or not itself an Interested Stockholder) which is, or
after such issuance or transfer would be, an Affiliate of an Interested
Stockholder in exchange for cash, securities or other property (or a combination
thereof); or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by or on behalf of an Interested
Stockholder or any Affiliate of an Interested Stockholder; or
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the corporation, or any merger or consolidation
of the corporation with any of its Subsidiaries or any other transaction
(whether or not with or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or convertible securities
of the corporation or any Subsidiary directly or indirectly beneficially owned
by (a) an Interested Stockholder or (b) any other person
- C-4 -
<PAGE> 13
(whether or not itself an Interested Stockholder) which is, or after such
reclassification, recapitalization, merger or consolidation or other transaction
would be, an Affiliate of an Interested Stockholder;
shall not be consummated unless such consummation shall have been approved by
the affirmative vote of the holders of at least eighty (80%) percent of the
combined voting power of the then outstanding shares of Voting Stock (as
hereinafter defined), voting together as a single class. Such affirmative vote
shall be required notwithstanding the fact that no vote may be required, or that
a lesser percentage may be specified, by law, in these Articles of Organization
or in any agreement with any national securities exchange or otherwise.
(B) The provisions of Paragraph (A) of this Provision shall not be
applicable to any particular Business Combination (as hereinafter defined) and
such Business Combination shall require only such affirmative vote as is
required by law and any other provision of these Articles of Organization, if
the Business Combination shall have been approved by a majority of the
Continuing Directors (as hereinafter defined) or all of the following conditions
shall have been met.
1. The transaction constituting the Business Combination shall
provide for a consideration to be received by all holders of Common Stock in
exchange for all their shares of Common Stock, and the aggregate amount of the
cash and the Fair Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be received per share
by holders of Common Stock in such Business Combination shall be at least equal
to the higher of the following:
(a) (if applicable) the highest per-share price (including any
brokerage commissions, transfer taxes and soliciting dealers, fees) paid in
order to acquire any shares of Common Stock Beneficially owned by an Interested
Stockholder M within the two-year period immediately prior to the Announcement
Date (as hereinafter defined), (ii) within the two-year period immediately prior
to the Determination Date (as hereinafter defined) or (iii) in the transaction
in which it became an Interested Stockholder, whichever is highest; or
(b) the Fair Market Value per share of Common Stock on the
Announcement Date or on the Determination Date, whichever is higher;
- C-5 -
<PAGE> 14
2. If the transaction constituting the Business Combination shall
provide for a consideration to be received by holders of any class or series of
outstanding Voting Stock other than Common Stock, the aggregate amount of the
cash and the Fair Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be received per share
by holders of shares of such class or series of Voting Stock shall be at least
equal to the highest of the following (it being intended that the requirements
of this subparagraph 2 shall be required to be met with respect to every class
or series of outstanding Voting Stock, whether or not an Interested Stockholder
has previously acquired any shares of a particular class of Voting Stock):
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid in
order to acquire any shares of such class or series of Voting Stock beneficially
owned by an Interested Stockholder (i) within the two-year period immediately
prior to the Announcement Date, (ii) within the two-year period immediately
prior to the Determination Date, or (iii) in the transaction in which it became
an Interested Stockholder, whichever is highest; or
(b) the Fair Market Value per share of such class or series of
Voting Stock on the Announcement Date or the Determination Date, whichever is
higher; or
(c) (if applicable) the highest preferential amount per share to
which the holders of shares of such class or series of Voting Stock are entitled
in the event of any voluntary or involuntary liquidation, dissolution or winding
up of the corporation;
3. The consideration to be received by holders of a particular class
or series of outstanding Voting Stock (including Common Stock) shall be in cash
or in the same form as was previously paid in order to acquire shares of such
class or series of Voting Stock which are beneficially owned by an Interested
Stockholder and, if an Interested Stockholder beneficially owns shares of any
class or series of Voting Stock which were acquired with varying forms of
consideration, the form of consideration for such class or series of Voting
Stock shall be either cash or the form used to acquire the largest number of
shares of such class or series of voting Stock beneficially owned by it. The
price determination in accordance with subparagraphs 1 and 2 of this Paragraph
(B) shall be subject to appropriate adjustment in the event of any
recapitalization, stock dividend, stock split, combination of shares or similar
event;
- C-6 -
<PAGE> 15
4. After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business Combination:
(a) except as approved by a majority of the Continuing
Directors, there shall have been no failure to declare and pay at the regular
date therefor the full amount of any dividends (whether or not cumulative)
payable on any outstanding preferred stock;
(b) there shall have been (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock) other than as approved by a majority of the
Continuing Directors and (ii) an increase in such annual rate of dividends as
necessary to prevent any such reduction in the event of any reclassification
(including any reverse stock split), recapitalization, reorganization or any
similar transaction which has the effect of reducing the number of outstanding
shares of the Common Stock, unless the failure so to increase such annual rate
is approved by a majority of the Continuing Directors;
(c) such Interested Stockholder shall not have become the
beneficial owner of any additional shares of Voting Stock at a price lower than
that paid in the transaction in which it became an Interested Stockholder.
5. After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the benefit,
directly or indirectly (except proportionately as a stockholder), of any loans,
advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided the corporation, whether in anticipation of or
in connection with such Business Combination or otherwise; and
6. A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (or
any subsequent provisions replacing such act, rules or regulations) shall be
mailed to the stockholders of the corporation, no later than the earlier of (a)
thirty (30) days prior to any vote on the proposed Business Combination or (b)
if no vote on such Business Combination is required, sixty (60) days prior to
the consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions). Such proxy statement shall contain at the front thereof,
in a prominent place, any recommendations as to the advisability (or
inadvisability) of the Business Combination which the Continuing Directors, or
any of
- C-7 -
<PAGE> 16
them, may have furnished in writing and, if deemed advisable by a majority of
the Continuing Directors, an opinion of a reputable investment banking firm as
to the fairness (or lack of fairness) of the terms of such Business Combination,
from the point of view of the holder of Voting Stock other than an Interested
Stockholder (such investment banking firm to be selected by a majority of the
Continuing Directors, to be furnished with all information it reasonably
requests and to be paid a reasonable fee for its services upon receipt by the
corporation of such opinion)
(C) For the purposes of this Provision:
1. "Business Combination" shall mean any transaction which is
referred to in any one or more of subparagraphs 1 through 5 of Paragraph (A) of
this Provision.
2. "Voting Stock" shall mean stock of all classes and series of the
corporation entitled to vote generally in the election of directors.
3. "Person" shall mean any individual, firm, trust, partnership,
association, corporation or other entity.
4. "Interested Stockholder" shall mean any person (other than the
corporation or any Subsidiary or any person who was a stockholder of the
corporation on January 8, 1981) who or which:
(a) is the beneficial owner, directly or indirectly, of more
than ten (10%) percent of the combined voting power of the then outstanding
Voting Stock; or
(b) is an Affiliate of the corporation and at any time within
the two-year period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of more than ten (10%) percent of the combined
voting power of the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to the
beneficial ownership of any shares of Voting Stock which were at any time within
the two-year period immediately prior to the date in question beneficially owned
by an Interested Stockholder, unless such assignment or succession shall have
occurred pursuant to a
- C-8 -
<PAGE> 17
Public Transaction (as hereinafter defined) or any series of transactions
involving a Public Transaction.
For the purposes of determining whether a person is an Interested
Stockholder, the number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through application of subparagraph 6 below but
shall not include any other shares of Voting Stock which may be issuable
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or option, or otherwise.
5. "Public Transaction" shall mean any (a) purchase of shares
offered pursuant to an effective registration statement under the Securities Act
of 1933 or (b) open-market purchase of shares on a national securities exchange
if, in either such case, the price and other terms of sale are not negotiated by
the purchaser and the seller of the beneficial interest in the shares.
6. A person shall be a "beneficial owner" of any Voting Stock:
(a) which such person or any of its Affiliates beneficially
owns, directly or indirectly; or
(b) which such person or any of its Affiliates has (i) the right
to acquire (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or options, or
otherwise or (ii) the right to vote or to direct the voting thereof pursuant to
any agreement, arrangement or understanding; or
(c) which is beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Voting Stock.
7. "Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on June 27, 1989.
8. "Subsidiary" shall mean any corporation of which a majority of
any class of equity security (as defined in Rule3all.1 of the General Rules and
Regulations under the
- C-9 -
<PAGE> 18
Securities Exchange Act of 1934, as in effect on June 27, 1989) is owned,
directly or indirectly, by the corporation; provided, however, that for the
purposes of the definition of Interested Stockholder set forth in subparagraph
4, the term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
corporation.
9. "Continuing Director" shall mean any member of the Board of
Directors of the corporation who is unaffiliated with, and not a nominee of, an
Interested Stockholder and was a member of the Board prior to the time that such
Interested Stockholder became an Interested Stockholder, and any successor of a
Continuing Director who is unaffiliated with, and not a nominee of, an
Interested Stockholder and is recommended to succeed a Continuing Director by a
majority of Continuing Directors then on the Board.
10. "Announcement Date" shall mean the date of the first public
announcement of the proposed Business Combination.
11. "Determination Date" shall mean the date on which an Interested
Stockholder became an Interested Stockholder.
12. "Fair Market Value" shall mean: (a) in the case of stock, the
highest closing sale price during the thirty (30)-day period immediately
preceding the date in question of a share of such stock on the National Market
System of the National Association of Securities Dealers Automated Quotation
System or any system then in use on any national securities exchange or
automated quotation system, or if no such quotations are available, the fair
market value on the date in question of a share of such stock as determined by a
majority of the Continuing Directors in good faith; and (b) in the case of
property other than cash or stock, the fair market value of such property on the
date in question as determined by a majority of the Continuing Directors in good
faith.
(D) A majority of the Continuing Directors shall have the power and duty
to determine for the purposes of this Provision, on the basis of information
known to them after reasonable inquiry, all facts necessary to determine
compliance with this Provision, including, without limitation, (1) whether a
person is an Interested Stockholder, (2) the number of shares of Voting Stock
beneficially owned by any person, (3) whether a person is an Affiliate of
another, (4) whether the requirements of Paragraph (B) of this Provision have
been met and (5) such other matters with respect to which a determination is
required under this Provision. The good faith determination of
- C-10 -
<PAGE> 19
a majority of the Continuing Directors on such matters shall be conclusive and
binding for all purposes of this Provision.
(E) Nothing contained in this Provision shall be construed to relieve an
Interested Stockholder of any fiduciary obligation imposed by law.
(F) Notwithstanding any other provisions of these Articles of Organization
or the By-laws of the corporation or the fact that a lesser percentage may be
specified by law, these Articles of Organization or the By-laws of the
corporation, the affirmative vote of the holders of at least eighty (80%)
percent of the combined voting power of the then outstanding Voting Stock,
voting together as a single class, shall be required to amend, alter, adopt any
provision inconsistent with or repeal this Provision; provided however that if
any such proposal receives the affirmative vote of each holder of at least 15%
of the outstanding Voting Stock who also held at least 15% of the outstanding
Voting Stock of the corporation on May 15, 1989, then such proposal shall
require only the affirmative vote of the holders of at least a majority of the
outstanding Voting Stock of the corporation.
Redemption of Shares
In accordance with Section 6 of Chapter 110D of the General Laws of the
Commonwealth of Massachusetts the corporation by action of its Board of
Directors is authorized, at the option of the corporation by such Board action
but without requiring the agreement of the person who has made a control share
acquisition (as defined in said Chapter 110D), to redeem all but not less than
all shares acquired in such a control share acquisition in accordance with and
subject to the limitations contained in said Chapter 110D including Section 6
thereof.
Supramajority Vote
In addition to any affirmative vote required by law or these Articles of
Organization, with respect to certain Business Combinations, until December 31,
1994:
1. any merger or consolidation of the corporation or any Subsidiary
with any other corporation, person, business or entity ("Subsidiary" is defined
as any corporation of which a majority of any class of equity security (as
defined in Rule3all.1 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on June 27, 1989) is owned, directly or
indirectly, by the corporation); or
- C-11 -
<PAGE> 20
2. any sale, lease, exchange, transfer or other disposition (in one
transaction or a series of transactions) of all or substantially all of the
assets of the corporation, but specifically excluding any granting of a security
interest associated with a debt transaction approved by the Board of Directors;
or
3. the adoption of any plan or proposal for the liquidation or
dissolution of the corporation; or
4. any amendment to or rescission of this subsection of Article 6
entitled "Supramajority Vote";
shall not be consummated unless such consummation shall have been approved by
the affirmative vote of the holders of at least eighty (80%) percent of the
combined voting power of the then outstanding shares of voting stock of the
corporation entitled to vote thereon ("Voting Stock"), voting together as a
single class; provided, however that if any such action receives the affirmative
vote of each holder of at least 15% of the outstanding Voting Stock of the
corporation who also held at least 15% of the outstanding Voting Stock of the
corporation on May 15, 1989, then such proposal shall require only the
affirmative vote of the holders of that number of the outstanding Voting Stock
of the corporation as is required by applicable law, these Articles of
Organization or the by-laws.
- C-12 -
<PAGE> 21
Exhibit A
---------
COGNEX CORPORATION
PLAN OF RECAPITALIZATION
June 27, 1989
1. COMMON STOCK. As of the Effective Date (as defined below), Cognex
Corporation (the "Company") will complete a one-for-two reverse stock split
pursuant to which (A) each holder of two (2) shares of the currently issued and
outstanding Class A Common Stock, with $.001 par value per share ("Old Class A
Stock") of the Company will be entitled to receive, in exchange therefor, one
(1) share of the newly authorized but unissued Class A Common Stock, with $.002
par value per share ("New Class A Stock") of the Company and (B) each holder of
two (2) shares of the currently issued and outstanding Class B Common Stock with
$.001 par value per share ("Old Class B Stock") will be entitled to receive, in
exchange therefor, one (1) share of the newly authorized but unissued Class B
Common Stock of the Company with $.002 par value per share ("New Class B
Stock"). Fractional shares will not be issued by the Company and, in lieu
thereof, holders will receive cash in an amount equal to the fair value of that
fractional share as of the Effective Date as determined by the Board of
Directors of the Company. Stockholders must return for exchange all certificates
representing shares of Old Class A Stock and Old Class B Stock in order to
receive cash or certificates representing New Class A Stock or New Class B
Stock. Accompanying the Notice of the Special Meeting is a Letter of Transmittal
for each holder to complete, date, execute and return to the Company together
with all certificates representing Old Class A Stock and Old Class B Stock. The
Transmittal Letter and the certificates will be held by the Company until the
Plan of Recapitalization is approved. Certificates representing the New Class A
Stock and New Class B Stock need not be issued in the event that the Company
completes the total conversion of all of its capital stock to a single series
and class of Common Stock. In such event, certificates representing such single
class of Common Stock will be issued. If the Plan is not approved, the
certificates and the Transmittal Letter will be returned to the holder.
2. PREFERRED STOCK. As a result of the reverse stock split approved in
paragraph 1 above, the conversion rates for the Company's currently authorized
Preferred Stock shall be adjusted (and Article 4 of the Articles of Organization
of the Company shall be amended) as follows: (A) the applicable Conversion Rate
for the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock, upon the consummation of the reverse stock split, shall be five
(5) such that each share of Series A, B and C Preferred Stock converts into five
(5) shares of New Class A Stock and (B) the applicable Conversion Rate for the
Series D Preferred Stock, upon the consummation of
<PAGE> 22
the reverse stock split, shall be one-half (1/2) such that each share of Series
D Preferred Stock shall convert into one-half (1/2) share of New Class A Stock.
3. AMENDMENTS TO ARTICLES OF ORGANIZATION. As a result of the reverse
stock split approved in paragraph 1 above, by adoption of this Plan of
Recapitalization, the Articles of Organization of the Company are amended such
that the total number of shares and the par value, if any, of the Common Stock
that the Company is authorized to issue shall be changed from 10,000,000 shares
of Class A Common Stock with $.001 par value per share and 2,500,000 shares of
Class B Common Stock with $.001 par value per share to 5,000,000 shares of Class
A Common Stock with $.002 par value per share and 1,250,000 shares of Class B
Common Stock with $.002 par value per share. In addition, by adoption of this
Plan of Recapitalization, the Articles of Organization are hereby further
amended to increase the number of shares of Class A Common Stock that the
Corporation is authorized to issue from 5,000,000 shares with $.002 par value
per share to 10,000,000 shares with $.002 par value per share (such new shares
to be known as "Common Stock"). The Company need not file two separate Articles
of Amendment to reflect these amendments and may make one filing with the
Secretary of the Commonwealth of Massachusetts showing the ultimate effect to
the Articles of Organization of this Plan of Recapitalization.
4. EFFECTIVE DATE. As used herein, the term "Effective Date" shall mean
June 28, 1989.
<PAGE> 23
*We further certify that the foregoing restated articles of organization
effect no amendments to the articles of organization of the corporation as
heretofore amended, except amendments to the following articles
Article 3, Article 4 and Article 6
- --------------------------------------------------------------------------------
(*If there are no such amendments, state "None".)
Briefly describe amendments in space below:
To Article 3
- ------------
1. Adopted the Cognex Corporation Plan of Recapitalization on June 27, 1989
(see Exhibit A hereto), following which the only shares of capital stock
which the Corporation shall have authority to issue shall be 10,000,000
shares of a single class of Common Stock having a par value of $.002 per
share and 400,000 shares of Preferred Stock par value $.01 per share, all
the previously issued Class A and Class B Common Stock and the Series A, B,
C and D Preferred Stock having been converted into shares of a single class
of Common Stock.
To Article 4
- ------------
1. Amended description of each of the different classes of stock.
To Article 6
- ------------
1. Creation of a classified Board of Directors.
2. Adoption of a Fair Price Amendment.
3. Adoption of provision regarding the redemption by the Corporation of shares
acquired in a control share acquisition; and
4. Adoption of provision regarding supramajority voting to approve certain
transactions.
IN WITNESS WHEREOF AND UNDER PENALTIES OF PERJURY, we have hereto signed our
names this 27th day of June in the year 1989.
/s/ Robert J. Shillman President/
- ---------------------------------------------------------------------
/s/ Anthony J. Medaglia, Jr. Clerk/
- ---------------------------------------------------------------------
<PAGE> 24
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
I hereby approve the within restated articles of
organization and, the filing fee in the amount of
$ having been paid, said articles are
deemed to have been filed with me
this
day of , 1989.
/s/ Michael Joseph Connolly
-------------------------------
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF RESTATED ARTICLES OF ORGANIZATION TO BE
SENT TO:
Anthony J. Medaglia, Jr.
----------------------------------------------------------
Hutchins & Wheeler
----------------------------------------------------------
101 Federal Street, Boston, MA 02110
----------------------------------------------------------
Telephone (617) 951-6600
--------------------------------------------
Copy Mailed
<PAGE> 25
The Commonwealth of Massachusetts
__________ OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
EXAMINER MICHAEL J. CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF AMENDMENT FEDERAL IDENTIFICATION
NO. 04-2713778
--------------
GENERAL LAWS, CHAPTER 156B, SECTION 72
We, Robert J. Shillman , President/, and
Anthony J. Medaglia, Jr. , Clerk/ of
COGNEX CORPORATION
---------------------------------------------------------------------------
(EXACT Name of Corporation)
located at 15 Crawford Street, Needham, Massachusetts 02194
---------------------------------------------------------------
do hereby certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED:
3
---------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)
of the Articles of Organization were duly adopted at a meeting held on
April 30, 1991, by vote of :
- -------
Name
Approved
<TABLE>
<S> <C> <C> <C> <C> <C>
2,547,604 shares of Common Stock out of 4,087,176 shares outstanding,
--------- -------------------------------- ---------
type, class and series, (if any)
-0- shares of Preferred Stock out of -0- shares outstanding, and
--------- -------------------------------- ---------
type, class and series, (if any)
shares of out of shares outstanding,
--------- -------------------------------- ---------
type, class and series, (if any)
</TABLE>
CROSS OUT being at least a majority of each type, class or series
INAPPLICABLE outstanding and entitled to vote thereon: (1)
CLAUSE
C | |
P | |
M | | (1) For amendments adopted pursuant to Chapter 156B,
Section 70.
RA | | (2) For amendments adopted pursuant to Chapter 156B,
Section 71.
- ------
P.C.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions
to more than one article may be continued on a single sheet so long as each
article requiring each such addition is clearly indicated.
<PAGE> 26
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -------------------------------- ----------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -------------------------------- ----------------------------------------
COMMON: N/A COMMON: 10,000,000 $.002
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
PREFERRED: N/A PREFERRED: 400,000 $0.01
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
CHANGE the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -------------------------------- ----------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -------------------------------- ----------------------------------------
COMMON: N/A COMMON: 15,000,000 $.002
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
PREFERRED: N/A PREFERRED: 400,000 $0.01
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
<PAGE> 27
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date.
EFFECTIVE DATE: Date of Filing
-----------------------------------------------------------
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this Thirtieth day of April, in the year 1991.
/s/ Robert J. Shillman
_________________________________________________________President/
/s/ Anthony J. Medaglia, Jr.
____________________________________________________________Clerk/
<PAGE> 28
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
================================================
I hereby approve the within articles of
amendment and, the filing fee in the amount of
$5,000.00 having been paid, said articles
are deemed to have been filed with me
this 9th day of May, 1991.
/s/ Michael J. Connolly
-------------------------------
MICHAEL J. CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT TO:
ANTHONY J. MEDAGLIA, JR.
-----------------------------------------------------------------
HUTCHINS & WHEELER
-----------------------------------------------------------------
101 FEDERAL STREET, BOSTON, MA 02110
-----------------------------------------------------------------
TELEPHONE: (617) 951-6600
-----------------------------------------------------
<PAGE> 29
The Commonwealth of Massachusetts
__________ OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
EXAMINER MICHAEL J. CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF AMENDMENT FEDERAL IDENTIFICATION
NO. 04-2713778
-------------------
GENERAL LAWS, CHAPTER 156B, SECTION 72
We, Robert J. Shillman , President/, and
Anthony J. Medaglia, Jr. , Clerk/ of
COGNEX CORPORATION
---------------------------------------------------------------------------
(EXACT Name of Corporation)
located at 15 Crawford Street, Needham, Massachusetts 02194
---------------------------------------------------------------
do hereby certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED:
3
---------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)
of the Articles of Organization were duly adopted at a meeting held on
April 21, 1992, by vote of :
- -------
Name
Approved
<TABLE>
<S> <C> <C> <C> <C> <C>
5,387,004 shares of Common Stock out of 8,450,806 shares outstanding,
--------- -------------------------------- ---------
type, class and series, (if any)
-0- shares of Preferred Stock out of -0- shares outstanding, and
--------- -------------------------------- ---------
type, class and series, (if any)
shares of out of shares outstanding,
--------- -------------------------------- ---------
type, class and series, (if any)
</TABLE>
CROSS OUT being at least a majority of each type, class or series
INAPPLICABLE outstanding and entitled to vote thereon: (1)
CLAUSE
C | |
P | |
M | | (1) For amendments adopted pursuant to Chapter 156B,
Section 70.
RA | | (2) For amendments adopted pursuant to Chapter 156B,
Section 71.
- ------
P.C.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions
to more than one article may be continued on a single sheet so long as each
article requiring each such addition is clearly indicated.
<PAGE> 30
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -------------------------------- ----------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -------------------------------- ----------------------------------------
COMMON: N/A COMMON: 15,000,000 $.002
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
PREFERRED: N/A PREFERRED: 400,000 $0.01
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
CHANGE the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -------------------------------- ----------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -------------------------------- ----------------------------------------
COMMON: N/A COMMON: 25,000,000 $.002
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
PREFERRED: N/A PREFERRED: 400,000 $0.01
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
<PAGE> 31
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date.
EFFECTIVE DATE: Date of Filing
-----------------------------------------------------------
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this 21st day of April, in the year 1992.
/s/ Robert J. Shillman
_________________________________________________________President/
/s/ Anthony J. Medaglia, Jr.
____________________________________________________________Clerk/
<PAGE> 32
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
================================================
I hereby approve the within articles of
amendment and, the filing fee in the amount of
$10,000.00 having been paid, said articles
are deemed to have been filed with me this
3rd day of August, 1992.
/s/ Michael J. Connolly
-------------------------------
MICHAEL J. CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT TO:
ANTHONY J. MEDAGLIA, JR.
-----------------------------------------------------------------
HUTCHINS & WHEELER
-----------------------------------------------------------------
101 FEDERAL STREET, BOSTON, MA 02110
-----------------------------------------------------------------
TELEPHONE: (617) 951-6600
-----------------------------------------------------
<PAGE> 33
The Commonwealth of Massachusetts
__________ OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
EXAMINER MICHAEL J. CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF AMENDMENT FEDERAL IDENTIFICATION
NO. 04-2713778
-------------------
GENERAL LAWS, CHAPTER 156B, SECTION 72
We, Robert J. Shillman , President/ , and
Anthony J. Medaglia, Jr. , Clerk/ of
COGNEX CORPORATION
---------------------------------------------------------------------------
(EXACT Name of Corporation)
located at 15 Crawford Street, Needham, Massachusetts 02194
---------------------------------------------------------------
do hereby certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED:
3
---------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)
of the Articles of Organization were duly adopted at a meeting held on
April 25, 1995, by vote of :
- -------
Name
Approved
<TABLE>
<S> <C> <C> <C> <C> <C>
13,514,984 shares of Common Stock out of 18,840,535 shares outstanding,
---------- -------------------------------- ----------
type, class and series, (if any)
shares of out of shares outstanding, and
---------- -------------------------------- ----------
type, class and series, (if any)
shares of out of shares outstanding,
---------- -------------------------------- ----------
type, class and series, (if any)
</TABLE>
CROSS OUT being at least a majority of each type, class or series
INAPPLICABLE outstanding and entitled to vote thereon: (1)
CLAUSE
C [ ]
P [ ]
M [ ] (1) For amendments adopted pursuant to Chapter 156B,
Section 70.
RA [ ] (2) For amendments adopted pursuant to Chapter 156B,
Section 71.
- ------
P.C.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions
to more than one article may be continued on a single sheet so long as each
article requiring each such addition is clearly indicated.
<PAGE> 34
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -------------------------------- ----------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -------------------------------- ----------------------------------------
COMMON: N/A COMMON: 25,000,000 $.002
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
PREFERRED: N/A PREFERRED: 400,000 $0.01
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
CHANGE the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -------------------------------- ----------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -------------------------------- ----------------------------------------
COMMON: N/A COMMON: 60,000,000 $.002
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
PREFERRED: N/A PREFERRED: 400,000 $0.01
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
<PAGE> 35
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date.
EFFECTIVE DATE: Date of Filing
-----------------------------------------------------------
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this 25th day of April, in the year 1995.
/s/ Robert J. Shillman
_________________________________________________________President/
/s/ Anthony J. Medaglia, Jr.
____________________________________________________________Clerk/
<PAGE> 36
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
================================================
I hereby approve the within articles of
amendment and, the filing fee in the amount of
$35,000.00 having been paid, said articles
are deemed to have been filed with me this 18th
day of May, 1995.
/s/ William Francis Galvin
-------------------------------
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT TO:
SHANNON D. WHISENART
-----------------------------------------------------------------
HUTCHINS, WHEELER & DITTMAR
-----------------------------------------------------------------
101 FEDERAL STREET, BOSTON, MA 02110
-----------------------------------------------------------------
TELEPHONE: (617) 951-6600
-----------------------------------------------------
<PAGE> 37
FEDERAL IDENTIFICATION
NO. 04-2713778
------------------
________ The Commonwealth of Massachusetts
Examiner William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
________ ARTICLES OF AMENDMENT
Name (General Laws, Chapter 156B, Section 72)
Approved
We, Robert Shillman , *President/
---------------------------------
and Anthony J. Medaglia, Jr. *Clerk/
---------------------------------
of COGNEX CORPORATION
(Exact name of corporation)
located at One Vision Drive, Natick, MA 01760
-----------------------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
3
---------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held on
April 23, 1996, by vote of:
<TABLE>
<S> <C> <C> <C> <C>
31,729,416 shares of Common Stock of 39,116,359 shares outstanding
-------------- ------------------------------ -------------
(type, class & series, if any)
shares of of shares outstanding, and
-------------- ------------------------------ -------------
(type, class & series, if any)
shares of of shares outstanding, and
-------------- ------------------------------ -------------
(type, class & series, if any)
</TABLE>
C [ ]
P [ ]
M [ ] (1)**being at least a majority of each type, class or series
outstanding and entitled to vote thereon:/or (2)**being at least
R.A. [ ] two-thirds of each type, class or series outstanding and entitled to
vote thereon and of each type, class or series outstanding and
entitled to vote thereon and of each type, class or series of stock
whose rights are adversely affected thereby:
*Delete the inapplicable words. **Delete the inapplicable clause.
(1) For amendments adopted pursuant to Chapter 156B, Section 70.
(2) For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of
separate 8 1/2 x 11 sheets of paper with a left margin of at least 1
inch. Additions to more than one article may be made on a single sheet
so long as each article requiring each addition is clearly indicated.
________
P.C.
<PAGE> 38
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -------------------------------- ----------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -------------------------------- ----------------------------------------
COMMON: COMMON: 60,000,000 $.002
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
PREFERRED: PREFERRED: 400,000 $0.01
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
CHANGE the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -------------------------------- ----------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -------------------------------- ----------------------------------------
COMMON: COMMON: 120,000,000 $.002
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
PREFERRED: PREFERRED: 400,000 $0.01
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
- -------------------------------- ----------------------------------------
<PAGE> 39
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with General Laws, Chapter 156B, Section 6 unless these
articles specify, in accordance with the vote adopting the amendment, a later
effective date not more than thirty days after such filing, in which event the
amendment will become effective on such later date.
Later effective date:
---------------------------------------------------------
SIGNED UNDER THE PENALTIES OF PERJURY, this 23rd day of April, in the year 1996.
/s/ Robert J. Shillman President/
- ----------------------------------------------------------------------
Robert J. Shillman
/s/ Anthony J. Medaglia, Jr. Clerk/
- -----------------------------------------------------------------------
Anthony J. Medaglia, Jr.
*Delete the inapplicable words.
<PAGE> 40
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
================================================
I hereby approve the within articles of
amendment and, the filing fee in the amount of
$60,000.00 having been paid, said articles
are deemed to have been filed with me this 10th
day of May, 1996.
Effective date: _______________________________
/s/ William Francis Galvin
------------------------------------
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT TO:
PATRICIA ROBICHAUD
-----------------------------------------------------------------
HUTCHINS, WHEELER & DITTMAR
-----------------------------------------------------------------
101 FEDERAL STREET,
BOSTON, MA 02110
-----------------------------------------------------------------
TELEPHONE: (617) 951-6600
-----------------------------------------------------
<PAGE> 1
EXHIBIT 11
COGNEX CORPORATION
COMPUTATION OF PER SHARE EARNINGS
Weighted average common and common share equivalents were computed as follows
(a):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average common shares outstanding 40,594,050 38,175,461 34,559,556
Weighted average options outstanding ...... 7,125,649 7,448,296 7,621,584
Shares assumed to be purchased ............ (3,905,842) (3,672,012) (5,031,566)
---------- ---------- ----------
Primary weighted average common and common
equivalent shares outstanding .......... 43,813,857 41,951,745 37,149,574
Dilutive effect of weighted average options 656,725 774,920
---------- ---------- ----------
Fully diluted weighted average common and
common equivalent shares outstanding ...... 43,813,857 42,608,470 37,924,494
========== ========== ==========
</TABLE>
(a) Adjusted for the two-for-one stock split effective December 18, 1995.
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUMMARY
Despite a challenging business environment marked by a slowdown in the
semiconductor and electronics industries, revenue for the year ended December
31, 1996 increased 18% over the prior year. The increase in revenue is due
primarily to increased volume from factory floor customers. Sales to factory
floor customers increased 71% over 1995 and grew to 35% of revenue in 1996
from 24% of revenue in 1995. Although sales to Original Equipment
Manufacturer (OEM) customers increased 40% during the first half of 1996, OEM
sales decreased 28% during the second half of 1996, resulting in a 1%
increase year-on-year. In the first quarter of 1996, the Company acquired
Isys Controls, Inc. ("Isys"), a developer of machine vision systems for
high-speed surface inspection. Sales of Isys products, which are included in
the factory floor business, represented 11% of revenue in 1996.
The Company's financial position remained strong at December 31, 1996, with
over $200 million in total assets and over $180 million in stockholders'
equity. Working capital increased 28% from the prior year and represented 76%
of total assets. Cash and investments increased 48% from the prior year
primarily as a result of over $50 million of cash generated from operations.
The following table sets forth certain consolidated financial data as a
percentage of revenue for the years ended December 31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C>
Revenue 100% 100% 100%
Cost of revenue 32 22 22
--- --- ---
Gross margin 68 78 78
Research, development and engineering expenses 16 13 16
Selling, general and administrative expenses 21 23 27
Charge for acquired in-process technology (1) 9
--- --- ---
Income from operations 31 33 35
Other income 5 3 2
--- --- ---
Income before provision for income taxes 36 36 37
Provision for income taxes 11 14 11
--- --- ---
Net income 25% 22% 26%
=== === ===
</TABLE>
(1) Charge from the write-off of acquired in-process technology in
connection with the acquisition of Acumen, Inc.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995:
The acquisition of Isys in the first quarter of 1996 was accounted for as a
pooling of interests. The results of operations of Isys for the full year
ended December 31, 1996 are included in the Company's results. The results of
operations of Isys for the years ended December 31, 1995 and 1994 were not
material to the Company's previously reported results, and therefore, these
prior years have not been restated.
Revenue for the year ended December 31, 1996 increased 18% to $122,843,000
from $104,543,000 for the year ended December 31, 1995. Sales to customers
based in the United States, which grew to 45% of revenue in 1996 compared to
41% of revenue in 1995, increased $12,597,000, or 30%, over 1995. Sales to
customers based in Japan increased $739,000, or 2%, over 1995, and sales to
customers based in Europe increased $3,715,000, or 30%, over 1995.
8
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The increase in worldwide revenue for the year ended December 31, 1996 over
the prior year is due primarily to increased volume from factory floor
customers. Sales to factory floor customers increased $17,737,000, or 71%,
over 1995, and grew to 35% of revenue in 1996 from 24% of revenue in 1995.
The increased volume from factory floor customers includes sales of Isys
products totaling $13,183,000, or 11% of revenue, for the year ended December
31, 1996. During the first half of 1996, sales to OEM customers increased
$13,505,000, or 40%, over the comparable period in 1995, whereas during the
second half of 1996, sales to OEM customers decreased $12,942,000, or 28%,
over the comparable period in 1995, resulting in increased OEM sales of
$563,000, or 1%, year-on-year. The trend in OEM sales experienced in the
second half of 1996 over the prior year is expected to continue over the next
few quarters due to the slowdown in the semiconductor and electronics
industries, from which the Company either directly or indirectly derives a
significant amount of its revenue.
Gross margin for the year ended December 31, 1996 was 68% and included a
$4,231,000 inventory charge to "Cost of revenue," which reduced the margin by
approximately four percentage points. The charge reflects costs associated
with excess inventories resulting from product transition plans over the next
year, as well as reduced production plans caused by the slowdown in the
semiconductor and electronics industries.
Excluding the inventory charge, gross margin for the year ended December 31,
1996 was 72% compared to 78% for the year ended December 31, 1995. The
decrease in gross margin excluding the inventory charge is due primarily to a
shift in product mix to lower margin products including Isys products, price
discounts to some of the Company's larger customers for attaining certain
volume thresholds, and underabsorbed manufacturing costs resulting from
reduced production plans. These influences may continue throughout 1997,
which would result in gross margins for 1997 that approximate the level
experienced for the full year 1996, excluding the inventory charge.
Research, development and engineering expenses for the year ended December
31, 1996 increased 47% to $19,434,000 from $13,190,000 for the year ended
December 31, 1995. Expenses as a percentage of revenue were 16% in 1996
compared to 13% in 1995. The increase in aggregate expenses is due primarily
to higher personnel-related costs to support the Company's continued
investment in the research and development of new and existing products.
These higher costs reflect the hiring of additional personnel at the
Company's corporate headquarters, and Japanese and Acumen subsidiaries, as
well as the addition of Isys engineers to the Company's talent pool. The
increase in expenses as a percentage of revenue is due primarily to the
investment in research and development outpacing the growth in revenue.
Selling, general and administrative expenses for the year ended December 31,
1996 increased 10% to $26,261,000 from $23,973,000 for the year ended
December 31, 1995. Expenses as a percentage of revenue were 21% in 1996
compared to 23% in 1995. The increase in aggregate expenses is due primarily
to higher personnel-related costs, both domestically and internationally, to
support the Company's worldwide operations and further penetrate the factory
floor market. These higher costs reflect the hiring of additional personnel
at the Company's corporate headquarters, and Japanese and European
subsidiaries, as well as the addition of Isys employees resulting from the
acquisition. The decrease in expenses as a percentage of revenue is due
primarily to the Company's efforts to control costs during the second half of
1996, which included the elimination of substantially all company bonuses.
Investment income for the year ended December 31, 1996 increased 50% to
$4,726,000 from $3,147,000 for the year ended December 31, 1995. The increase
in investment income is due primarily to an increased investment base, as
well as higher returns on invested balances.
Other income for the year ended December 31, 1996 totaled $678,000, compared
to other expense of $182,000 for the year ended December 31, 1995. Other
income (expense) consists primarily of rental income and related expenses
from leasing the building adjacent to the Company's corporate headquarters,
which was purchased in June 1995. The increase in other income is due
primarily to the collection of rental income for a full year in 1996,
compared to only a half year in 1995.
9
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The Company's effective tax rate was 30.5% for each of the years ended
December 31, 1996 and 1995, excluding the impact of a $10,189,000 charge for
acquired in-process technology in the third quarter of 1995, which had no
associated tax benefit.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994:
Revenue for the year ended December 31, 1995 increased 67% to $104,543,000
from $62,484,000 for the year ended December 31, 1994. Contributing to the
revenue increase, each of the Company's major geographic areas, the United
States, Japan, and Europe, grew in excess of 55% from the prior year. Revenue
from international customers amounted to $61,924,000 in 1995, compared to
$38,451,000 in 1994, an increase of 61%. Revenue from domestic customers
increased 77% over the prior year.
The increase in worldwide revenue is due primarily to increased volume
generated from OEM customers. Sales to OEM customers increased $29,792,000,
or 60%, from the prior year and over 50 new OEM customers were added
worldwide in 1995. OEM relationships typically take two to five years to
reach significant sales and volume levels. In addition, sales to factory
floor customers increased $12,267,000, or 96%, from the prior year and grew
to 24% of revenue in 1995 from 20% of revenue in 1994. Over 140 new factory
floor customers were added worldwide in 1995.
Gross margin as a percentage of revenue was consistent for the year ended
December 31, 1995 compared to the year ended December 31, 1994, representing
78% of revenue in both years.
Research, development and engineering expenses increased to $13,190,000 for
the year ended December 31, 1995 from $9,933,000 for the year ended December
31, 1994. Expenses as a percentage of revenue were 13% in 1995 compared to
16% in 1994. The increase in aggregate costs is due primarily to higher
personnel-related costs to support the Company's investment in the research
and development of new and existing products. In 1995, the number of
employees engaged in research, development and engineering activities
increased by 39% over the prior year. The decrease in expenses as a
percentage of revenue is due to revenue growth outpacing the investment in
research and development.
Selling, general and administrative expenses increased to $23,973,000 for the
year ended December 31, 1995 from $16,847,000 for the year ended December 31,
1994. Expenses as a percentage of revenue were 23% in 1995 compared to 27% in
1994. The increase in aggregate costs is due primarily to higher
personnel-related costs, both domestically and internationally, to support
the Company's worldwide sales effort, in addition to costs related to
fluctuations in foreign currency exchange rates. In 1995, the number of
employees engaged in sales, marketing, and support activities increased by
36% over the prior year.
As discussed in the Notes to the Consolidated Financial Statements, on July
21, 1995, the Company acquired Acumen, Inc. ("Acumen") for approximately
$14,000,000. Of the purchase price, $10,189,000 was allocated to in-process
technology which was charged to expense in the third quarter of 1995. This
charge was not deductible for tax purposes. The Company invested considerable
additional development efforts related to the in-process technology to add
functionality, increase hardware performance, and conform and integrate the
technology to the Company's product standards.
Investment income increased to $3,147,000 for the year ended December 31,
1995 from $1,462,000 for the year ended December 31, 1994. The increase in
investment income is due primarily to an increased investment base.
Other expense for the year ended December 31, 1995 was $182,000. Other
expense consists primarily of operating expenses, net of rental income, from
leasing the building adjacent to the Company's corporate headquarters, which
was purchased in June 1995. Operating expenses in 1995 included certain
non-recurring costs related to the initial leasing of the building.
10
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The Company's effective tax rate for the year ended December 31, 1995 was
39%, compared to 31% for the year ended December 31, 1994. The increase in
the effective tax rate is due primarily to the impact of a $10,189,000 charge
for acquired in-process technology which had no associated tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements during the year ended December 31, 1996 were
met through cash generated from operations. Cash and investments increased
$43,360,000 from December 31, 1995 primarily as a result of $51,109,000 of
cash generated from operations, offset by $10,154,000 of capital
expenditures. Cash generated from operations consists of net income, adjusted
primarily for the effects of depreciation and amortization and changes in
current assets and current liabilities, most notably decreases in accounts
receivable and inventories.
As discussed in the Notes to Consolidated Financial Statements, the Company
has substantially completed its transition to a turnkey manufacturing
operation. At December 31, 1996, the Company had unconditional obligations to
purchase $3,812,000 of inventory from a third-party contractor within 60
days.
Capital expenditures for the year ended December 31, 1996 totaled $10,154,000
and consisted primarily of expenditures for computer hardware and software,
and expenditures related to a 50,000 square-foot expansion of the Company's
corporate headquarters. Future cash requirements related to the expansion
approximate $800,000, the majority of which is expected be paid out through
the first quarter of 1997 with anticipated funding from cash generated from
operations. However, since the Company's planned hiring over the next several
quarters is substantially less than anticipated when construction commenced,
occupancy of this additional space, along with the related operating costs,
will be delayed until the additional space is needed, which is anticipated to
be late 1997 or early 1998.
In 1997, the Company will implement a new business system to replace many of
its existing systems. Future cash requirements related to the new business
system approximate $2,250,000, the majority of which is expected to be paid
out through 1997 with anticipated funding from cash generated from
operations. The new business system is not expected to be fully implemented
until late 1997 or early 1998.
In July 1995, the Company acquired Acumen for approximately $14,000,000. The
purchase price included $8,452,000 in cash, $755,000 of which, at December
31, 1996, remained to be paid out through the year 2000.
The Company believes that the existing cash and investments balance, together
with cash generated from operations, will be sufficient to meet the Company's
planned working capital and capital expenditure requirements through 1997,
including potential business acquisitions.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this annual report are "forward-looking
statements," which are based on expectations of the Company. Actual results
could differ materially from the expectations made in the forward-looking
statements as a result of a number of factors, including (1) capital spending
trends by manufacturing companies; (2) the cyclicality of the semiconductor
industry; (3) the Company's continued ability to achieve significant
international revenue; (4) the loss of, or a significant curtailment of
purchases by, any one or more principal customers; (5) inability to protect
the Company's proprietary technology and intellectual property; (6)
inability to attract or retain skilled employees; (7) technological
obsolescence of current products and the inability to develop new products;
(8) inability to respond to competitive technology and pricing pressures; and
(9) reliance upon certain sole source suppliers to manufacture or deliver
critical components of the Company's products.
11
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The foregoing list should not be construed as exhaustive and the Company
disclaims any obligation subsequently to revise forward-looking statements to
reflect events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events. Further
discussions of risk factors are also available in the Company's registration
statements filed with the Securities and Exchange Commission. The Company
wishes to caution readers not to place undue reliance upon any such forward-
looking statements, which speak only as of the date made.
12
<PAGE> 6
COGNEX CORPORATION - CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Revenue ......................................................... $122,843 $ 104,543 $62,484
Cost of revenue ................................................. 38,855 22,543 13,884
-------- --------- -------
Gross margin .................................................... 83,988 82,000 48,600
Research, development and engineering expenses .................. 19,434 13,190 9,933
Selling, general and administrative expenses .................... 26,261 23,973 16,847
Charge for acquired in-process technology ....................... 10,189
-------- --------- -------
Income from operations .......................................... 38,293 34,648 21,820
Investment income ............................................... 4,726 3,147 1,462
Other income (expense) .......................................... 678 (182)
-------- --------- -------
Income before provision for income taxes ........................ 43,697 37,613 23,282
Provision for income taxes ...................................... 13,328 14,579 7,210
-------- --------- -------
Net income ...................................................... $ 30,369 $ 23,034 $16,072
======== ========= =======
Net income per common and common equivalent share:
Primary .................................................... $ .69 $ .55 $ .43
======== ========= =======
Fully diluted .............................................. $ .69 $ .54 $ .42
======== ========= =======
Weighted average common and common equivalent shares outstanding:
Primary .................................................... 43,814 41,952 37,150
======== ========= =======
Fully diluted .............................................. 43,814 42,608 37,924
======== ========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE> 7
COGNEX CORPORATION - CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
ASSETS (Dollars in thousands)
<S> <C> <C>
Current assets:
Cash and investments ........................................... $134,000 $ 90,640
Accounts receivable, less reserves of $968 and $709 in 1996 and
1995, respectively .......................................... 18,809 24,312
Revenue in excess of billings .................................. 3,379
Inventories .................................................... 7,013 12,567
Deferred income taxes .......................................... 2,642 1,811
Prepaid expenses and other ..................................... 3,545 6,463
-------- --------
Total current assets ....................................... 169,388 135,793
-------- --------
Property, plant and equipment, net................................... 28,331 22,133
Other assets ........................................................ 3,534 4,169
Deferred income taxes ............................................... 77
-------- --------
$201,253 $162,172
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................... $ 3,652 $ 2,775
Accrued expenses ............................................... 7,007 9,333
Accrued income taxes ........................................... 2,029 3,111
Customer deposits .............................................. 2,596 867
Deferred revenue ............................................... 1,287 305
-------- --------
Total current liabilities .................................. 16,571 16,391
-------- --------
Other liabilities ................................................... 1,600 1,865
Deferred income taxes ............................................... 393
Commitments (see Notes to Consolidated Financial Statements)
Stockholders' equity:
Common stock, $.002 par value -
Authorized: 120,000,000 shares, issued: 40,914,166 and
39,039,675 shares in 1996 and 1995, respectively ............ 82 78
Additional paid-in capital ..................................... 77,569 71,171
Cumulative translation adjustment .............................. 95 40
Retained earnings .............................................. 105,832 73,516
Treasury stock, at cost, 80,918 shares in 1996 and 1995......... (889) (889)
-------- --------
Total stockholders' equity ................................. 182,689 143,916
-------- --------
$201,253 $162,172
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
14
<PAGE> 8
COGNEX CORPORATION - CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
COMMON STOCK PAID-IN TRANSLATION RETAINED TREASURY STOCK STOCKHOLDERS'
(Dollars In Thousands) SHARES PAR VALUE CAPITAL ADJUSTMENT EARNINGS SHARES COST EQUITY
- ---------------------- ------ --------- ------- ---------- -------- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 .............. 17,012,705 $ 34 $20,887 $ 30 $ 34,410 20,946 $(300) $ 55,061
Secondary public offering of common
stock, net of offering costs
of $299 ............................ 1,429,608 3 29,834 29,837
Issuance of stock under stock option and
stock purchase plans ............... 309,622 1 1,720 1,721
Tax benefit from exercise of stock
options ............................ 1,192 1,192
Common stock received for payment of
stock option exercises ............. 9,932 (192) (192)
Translation adjustment .................. (83) (83)
Net income .............................. 16,072 16,072
---------- ------ ------- ---- -------- ------ ----- --------
Balance at December 31, 1994 .............. 18,751,935 38 53,633 (53) 50,482 30,878 (492) 103,608
---------- ------ ------- ---- -------- ------ ----- --------
Common stock issued to acquire
Acumen, Inc. ....................... 96,140 4,170 4,170
Issuance of stock under stock option and
stock purchase plans ............... 683,079 1 4,826 4,827
Tax benefit from exercise of stock
options............................. 8,581 8,581
Common stock received for payment of
stock option exercises ............. 9,581 (397) (397)
Stock issued to effect stock split ...... 19,508,521 39 (39) 40,459
Translation adjustment .................. 93 93
Net income .............................. 23,034 23,034
---------- ------ ------- ---- -------- ------ ----- --------
Balance at December 31, 1995 .............. 39,039,675 78 71,171 40 73,516 80,918 (889) 143,916
---------- ------ ------- ---- -------- ------ ----- --------
Common stock issued to acquire Isys
Controls, Inc. ..................... 1,331,927 3 2,469 1,947 4,419
Issuance of stock under stock option,
stock purchase, and bonus plans .... 542,564 1 2,495 2,496
Tax benefit from exercise of stock
options ............................ 134 1,434
Translation adjustment .................. 55 55
Net income .............................. 30,369 30,369
---------- ------ ------- ---- -------- ------ ----- --------
Balance at December 31, 1996 .............. 40,914,166 $ 82 $77,569 $ 95 $105,832 80,918 $(889) $182,689
========== ====== ======= ==== ======== ====== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE> 9
COGNEX CORPORATION - CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .......................................................... $ 30,369 $ 23,034 $ 16,072
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation of property, plant and equipment ................. 4,352 2,845 1,754
Amortization of intangible assets ............................. 735 355
Loss on disposition of property, plant and equipment .......... 99 56
Charge for acquired in-process technology ..................... 10,189
Tax benefit from exercise of stock options .................... 1,434 8,581 1,192
Inventory provision ........................................... 4,231
Deferred income tax provision ................................. (385) (1,326) (444)
Changes in other current assets and current liabilities:
Accounts receivable ............................................... 6,276 (14,705) (1,986)
Inventories ....................................................... 2,523 (7,678) (1,458)
Accounts payable .................................................. 519 1,361 833
Other ............................................................. 956 (877) 3,016
--------- -------- --------
Net cash provided by operating activities ........................... 51,109 21,835 18,979
--------- -------- --------
Cash flows from investing activities:
Investments ......................................................... (18,848) (41,560) (2,406)
Purchase of property, plant and equipment ........................... (10,154) (10,503) (13,119)
Cash payments related to acquisition of Acumen, Inc.,
net of $200 cash assumed in 1995 ................................. (1,277) (6,454)
Cash assumed in acquisition of Isys Controls, Inc. .................. 918
Other ............................................................... (71) (294) (199)
--------- -------- --------
Net cash used in investing activities ............................... (29,432) (58,811) (15,724)
--------- -------- --------
Cash flows from financing activities:
Net proceeds from secondary public offering of common stock ......... 29,837
Proceeds from issuance of stock under stock option, stock
purchase, and bonus plans ........................................ 2,496 4,430 1,529
--------- -------- --------
Net cash provided by financing activities ........................... 2,496 4,430 31,366
--------- -------- --------
Effect of exchange rate changes on cash ................................ 339 131 (128)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents ................... 24,512 (32,415) 34,493
Cash and cash equivalents at beginning of year ......................... 23,911 56,326 21,833
--------- -------- --------
Cash and cash equivalents at end of year ............................... 48,423 23,911 56,326
Investments ............................................................ 85,577 66,729 25,169
--------- -------- --------
Cash and investments ................................................... $ 134,000 $ 90,640 $ 81,495
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE> 10
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application of
certain accounting policies described in this and other notes to the
consolidated financial statements.
Nature of Operations
Cognex Corporation (the "Company") designs, develops, and markets machine
vision systems, or computers that can "see." The Company's products are used
to automate a wide range of manufacturing processes where vision is required.
The Company's primary customers, Original Equipment Manufacturers (OEMs) in
the semiconductor and electronics industries, are principally located in
Japan and the United States.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the balance
sheet date and the reported amounts of revenues and expenses during the year.
Actual results could differ from those estimates.
Basis of Consolidation
The consolidated financial statements include the accounts of Cognex
Corporation and its subsidiaries, all of which are wholly-owned. All
intercompany accounts and transactions have been eliminated. Certain amounts
reported in prior years have been reclassified to be consistent with the
current year's presentation.
Foreign Currency
The financial statements of the Company's foreign subsidiaries, where the
local currency is the functional currency, are translated using exchange
rates in effect at the end of the year for assets and liabilities and average
exchange rates during the year for results of operations. The resulting
foreign currency translation adjustments are reported as a separate component
of stockholders' equity.
The Company enters into transactions denominated in foreign currencies and
includes the exchange rate gain or loss arising from such transactions in
current operations. The Company recorded exchange rate losses of $1,027,000
and $573,000 in 1996 and 1995, respectively, and an exchange rate gain of
$230,000 in 1994.
Cash and Investments
Cash and investments include cash equivalents, which the Company considers to
be all investments purchased with original maturities of three months or
less. Investments having original maturities in excess of three months are
stated at amortized cost, which approximates fair value, and are classified
as available-for-sale. The Company considers all of its investments to be
available for current operations and maintains its investments in securities
which are highly liquid and would not result in significant losses if sold
prior to maturity.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out basis.
17
<PAGE> 11
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over the assets' estimated useful lives. Buildings'
useful lives are 39 years, building improvements' useful lives are ten years,
and the useful lives of computer hardware, computer software, and furniture
and fixtures range from two to five years. Leasehold improvements are
depreciated over the shorter of the estimated useful lives or the remaining
terms of the leases. Maintenance and repairs are expensed when incurred;
additions and improvements are capitalized. Upon retirement or disposition,
the cost and related accumulated depreciation of the assets disposed of are
removed from the accounts, with any resulting gain or loss included in
current operations.
Intangible Assets
Intangible assets are stated at cost and amortized using the straight-line
method over the assets' estimated useful lives, which range from five to
eight years. The Company evaluates the possible impairment of long-lived
assets, including intangible assets, whenever events or circumstances
indicate that the carrying value of the assets may not be recoverable.
Warranty Obligations
The Company provides its factory floor products with a one-year warranty from
the date of shipment and all other products with a 90-day warranty from the
date of shipment. Estimated warranty obligations are evaluated and recorded
at the time of sale.
Revenue Recognition
Revenue from product sales and software licenses is recognized upon shipment.
Revenue from construction-type projects, which include research and
development contracts, is recognized using the percentage-of-completion
method. Losses on projects, if any, are recognized when identified. Service
and maintenance revenue is recognized as earned.
Research and Development
Research and development costs for internally-developed products are expensed
when incurred until technological feasibility has been established for the
product. Thereafter, all software costs are capitalized until the product is
available for general release to customers. The cost of acquired software is
capitalized for products determined to have reached technological
feasibility, otherwise the cost is expensed. Capitalized software costs are
amortized using the straight-line method over the economic life of the
product, typically three to five years, or based upon the anticipated
revenues of the product.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under the liability method prescribed by SFAS No. 109, a deferred tax asset
or liability is determined based on the differences between the financial
statement and tax basis of assets and liabilities as measured by the enacted
tax rates which will be in effect when these differences reverse. Tax credits
are recorded as a reduction in income taxes.
18
<PAGE> 12
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Income per Share
Primary and fully diluted net income per share are calculated based on the
weighted average number of common and dilutive common equivalent shares
outstanding during the year. Dilutive common equivalent shares consist of
stock options, calculated using the treasury stock method.
FINANCIAL INSTRUMENTS
Fair Value
The Company's financial instruments consist primarily of cash and cash
equivalents, investments, trade receivables, trade payables, and forward
exchange contracts. The carrying amounts of cash and cash equivalents,
investments, trade receivables, and trade payables approximates fair value
due to the short maturity of these instruments. Based on year-end exchange
rates and the various maturity dates of the forward exchange contracts, the
Company estimates the aggregate contract value to be representative of the
fair values of these instruments.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of cash and cash equivalents, investments,
and trade receivables.
The Company invests in debt instruments of U.S. and state government
entities. The Company has established guidelines relative to credit ratings,
diversification, and maturities that maintain safety and liquidity. The
Company has not experienced any significant losses on its cash equivalents
and investments.
A significant portion of the Company's sales and receivables are from
customers in the semiconductor and electronics industries. The Company
performs ongoing credit evaluations of its customers and maintains allowances
for potential credit losses. The Company has not experienced any significant
losses related to the collection of its accounts receivable.
Off-Balance Sheet Risk
In certain instances, the Company enters into forward exchange contracts to
hedge specific commitments against foreign currency fluctuations. The forward
exchange contracts are for periods consistent with its committed exposure and
require the Company to exchange foreign currencies for U.S. dollars at
maturity, at rates agreed to at the inception of the contracts. The Company
had no foreign exchange contracts outstanding at December 31, 1996. The
Company had $1,079,000 of foreign exchange contracts outstanding, all of
which were in Japanese yen, at December 31, 1995.
19
<PAGE> 13
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH AND INVESTMENTS
Cash and investments consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Cash ............................................... $ 25,905 $14,257
Municipal obligations with contractual maturities:
Less than three months .......................... 22,518 9,654
-------- -------
Total cash and cash equivalents............... 48,423 23,911
Greater than three months and less than one year. 30,025 34,635
Greater than one year ........................... 55,552 32,094
-------- -------
$134,000 $90,640
======== =======
</TABLE>
INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
(In thousands)
<S> <C> <C>
Raw materials .............. $ 3,861 $ 6,340
Work-in-process ............ 1,710 4,468
Finished goods ............. 1,442 1,759
------- -------
$ 7,013 $12,567
======= =======
</TABLE>
In the third quarter of 1996, the Company recorded a $4,231,000 inventory charge
to "Cost of revenue." The charge reflects costs associated with excess
inventories resulting from product transition plans over the next year, as well
as reduced production plans caused by the slowdown in the semiconductor and
electronics industries.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Land ......................... $ 1,150 $ 1,150
Buildings .................... 12,963 12,963
Building improvements ........ 1,883 1,842
Construction-in-process ...... 5,943 183
Computer hardware and software 13,921 9,556
Furniture and fixtures ....... 1,713 1,544
Leasehold improvements ....... 477 250
-------- --------
38,050 27,488
Less: accumulated depreciation (9,719) (5,355)
-------- --------
$ 28,331 $ 22,133
======== ========
</TABLE>
20
<PAGE> 14
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Payroll and related costs .......... $2,066 $1,932
Warranty ........................... 1,284 1,311
Professional fees .................. 938 868
Bonus .............................. 559 2,477
Accrued acquisition costs .......... 337 1,260
Other .............................. 1,823 1,485
------ ------
$7,007 $9,333
====== ======
</TABLE>
INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Current:
Federal .............................. $13,169 $14,083 $6,960
State................................. 128 1,572 452
Foreign............................... 392 249 243
------- ------- ------
13,689 15,904 7,655
Deferred:
Federal............................... (902) (28) (365)
State................................. 541 (1,297) (80)
------- ------- ------
$13,328 $14,579 $7,210
======= ======= ======
</TABLE>
A reconciliation of the provision for income taxes at the federal statutory
rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Provision for income taxes at federal statutory rate ............. 35% 35% 35%
Non-deductible charge for acquired in-process technology.......... 9
State income taxes, net of federal benefit 2.5 2 2
Foreign Sales Corporation benefit................................. (3) (4) (3)
Tax-exempt investment income...................................... (3) (2) (2)
Tax credit utilization............................................ (1) (1) (1)
---- -- --
Provision for income taxes........................................ 30.5% 39% 31%
==== == ==
</TABLE>
21
<PAGE> 15
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES (CONTINUED)
Deferred income taxes reflect the tax impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and
such amounts as measured by tax laws and regulations. The tax effects of the
principal items making up deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Current deferred tax assets:
Vacation, bad debt and other............................ $ 936 $ 797
Inventory, warranty and other........................... 1,461 795
Other................................................... 245 219
------ ------
Total net current deferred tax asset........................ $2,642 $1,811
====== ======
Noncurrent deferred tax assets (liabilities):
State net operating loss and credit carryforwards $ 574 $1,292
Acquired complete technology............................ (630) (900)
Depreciation............................................ (337) (315)
------ ------
Total net noncurrent deferred tax asset(liability).......... $ (393) $ 77
====== ======
</TABLE>
The Company believes that it is more likely than not that the deferred tax
assets will be recognized; therefore, no valuation allowance is considered
necessary at December 31, 1996 and 1995. The Company's credit carryforwards
of $574,000 will expire in the year 2011.
LEASES
The Company conducts some of its operations in leased facilities. These lease
agreements expire at various dates through the year 2002 and are accounted
for as operating leases. Annual rent expense totaled $1,324,000 in 1996,
$996,000 in 1995, and $1,378,000 in 1994. Future minimum rental payments
under these agreements are as follows at December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
YEAR Amount
---- ------
<S> <C>
1997 $1,361
1998 845
1999 537
2000 553
2001 135
Thereafter 103
------
$3,534
======
</TABLE>
22
<PAGE> 16
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LEASES (CONTINUED)
In June 1995, the Company purchased an 83,000 square-foot office building
adjacent to its corporate headquarters. The building is currently occupied
with tenants who have lease agreements that expire at various dates through
the year 2000. Annual rental income totaled $1,326,000 in 1996 and $536,000
in 1995. Rental income and related expenses are presented on the Consolidated
Statement of Income as "Other income (expense)." Future minimum rental
receipts under noncancelable lease agreements are as follows at December 31,
1996 (in thousands):
<TABLE>
<CAPTION>
YEAR Amount
---- ------
<S> <C>
1997 $1,218
1998 811
1999 783
2000 134
------
$2,946
======
</TABLE>
COMMITMENTS
At December 31, 1996, the Company had substantially completed its transition
to a turnkey manufacturing operation whereby the majority of component
procurement, subassembly, final assembly, and initial testing are performed
under agreement by a single third-party contractor. After the completion of
initial testing, the third-party contractor delivers the products to the
Company to perform final testing and assembly. At December 31, 1996, the
Company had unconditional obligations to purchase $3,812,000 of inventory
from the third-party contractor within 60 days. These purchase commitments
relate to expected sales in 1997.
STOCKHOLDERS' EQUITY
Common and Preferred Stock
In December 1994, the Company completed a secondary public offering for the
sale of 2,859,216 shares of common stock.
On November 14, 1995, the Company announced a two-for-one stock split,
effected in the form of a stock dividend, payable December 18, 1995 to
stockholders of record at the close of business December 1, 1995.
Accordingly, $39,000 representing the par value of the additional shares
issued was transferred from additional paid-in capital to common stock. These
consolidated financial statements and related notes have been retroactively
adjusted, as appropriate, to reflect this two-for-one stock split.
In April 1996, an amendment to the Company's Articles of Organization was
adopted to increase the number of authorized shares of common stock from
60,000,000 shares to 120,000,000 shares.
The Company has 400,000 shares of authorized but unissued $.01 par value
preferred stock.
Stock-Based Compensation Plans
The Company has adopted the disclosure requirements of Statement of Financial
Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based
Compensation." The Company continues to recognize compensation costs using
the intrinsic value based method described in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." No compensation
costs were recognized in 1996, 1995, and 1994.
23
<PAGE> 17
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCKHOLDERS' EQUITY (CONTINUED)
Stock-Based Compensation Plans (Continued)
Net income and net income per share as reported in these consolidated
financial statements and on a pro forma basis, as if the fair value based
method described in SFAS No. 123 had been adopted, are as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
---- ----
<S> <C> <C> <C>
Net income As reported $30,369 $23,034
Pro forma 25,204 21,652
Primary net income per share As reported .69 .55
Pro forma .59 .52
Fully diluted net income per share As reported .69 .54
Pro forma .59 .51
</TABLE>
The effects of applying SFAS No. 123 for the purpose of providing pro forma
disclosures may not be indicative of the effects on reported net income and
net income per share for future years, as the pro forma disclosures include
the effects of only those awards granted after January 1, 1995.
Stock Option Plans
At December 31, 1996, the Company had 8,672,000 shares approved by the Board
of Directors and stockholders for grant under the following stock option
plans: the 1992 Director plan, 352,000; the 1993 Director plan, 320,000; and
the 1993 Employee plan, 8,000,000. In April 1996, an amendment was adopted to
increase the number of shares of common stock reserved for issuance under the
1993 Employee plan from 5,000,000 shares to 8,000,000 shares.
In connection with the acquisition of Isys Controls, Inc. in February 1996,
the Company adopted the 1996 Long-Term Incentive Plan. This plan provided for
the grant of 321,589 shares of either restricted common stock or options to
purchase restricted stock. Other than restrictions that limit the sale and
transfer of the restricted stock within twenty years from the date of grant,
participants are entitled to all of the rights of a stockholder.
Options vest over various periods, not exceeding eight years, and expire no
later than twenty years from the date of grant.
On July 30, 1996, the Company granted 1,177,830 options at the current fair
market value with similar terms and conditions to previously issued but
unexercised grants. In exchange for the new grants, employees agreed to
forfeit their prior options.
24
<PAGE> 18
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
The following table summarizes the status of the Company's stock option plans
at December 31, 1996, 1995, and 1994, and changes during the years then
ended:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ------------------------ -----------------------
WEIGHTED- Weighted- Weighted-
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year $ 7,699,826 $ 9.10 $ 7,882,832 $ 5.69 $7,817,632 $5.12
Granted at fair market value 933,915 16.80 1,397,874 21.74 788,100 9.17
Granted above fair market value 1,807,583 16.18 71,000 26.39
Exercised (518,925) 3.18 (1,312,392) 3.36 (587,100) 2.61
Forfeited (1,908,013) 24.39 (339,488) 7.73 (135,800) 6.40
----------- ----------- ----------
Outstanding at end of year 8,014,386 8.34 7,699,826 9.10 7,882,832 5.69
=========== =========== ==========
Options exercisable at year-end $ 2,128,058 $ 4.40 $ 1,389,164 3.17 $1,785,204 2.66
Weighted-average grant-date fair
value of options granted during
the year at fair market value $11.78 $11.19
Weighted-average grant-date fair
value of options granted during
the year above fair market value $ 4.46 $10.17
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- ------------------------------------
Weighted-Average
Remaining Weighted- Weighted-
Range of Number Contractual Life Average Number Average
Exercise Prices Outstanding (In years) Exercise Price Exercisable Exercise Price
--------------- ----------- ----------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ .50 - 5.78 1,780,693 6.0 $ 2.53 1,464,618 $ 2.37
6.00 - 7.48 697,790 6.8 6.27 314,462 6.25
7.50 - 7.50 3,034,000 11.8 7.50 62,000 7.50
7.94 - 14.19 871,260 7.9 11.62 212,918 11.09
14.50 - 14.50 1,302,433 9.4 14.50 66,024 14.50
14.56 - 26.50 328,210 9.6 18.85 8,036 16.42
--------- ---------
.50 - 26.50 8,014,386 9.1 8.34 2,128,058 4.40
========= =========
</TABLE>
For the purpose of providing pro forma disclosures, the fair values of
options granted were estimated using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in 1996 and
1995, respectively: a risk-free interest rate of 6.3% and 5.9%, an expected
life of 4.4 and 4.5 years, expected volatility of 50%, and no expected
dividends.
25
<PAGE> 19
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCKHOLDERS' EQUITY (CONTINUED)
Employee Stock Purchase Plan
Under the Company's Employee Stock Purchase Plan (ESPP), employees who have
completed six months of continuous employment with the Company may purchase
common stock semi-annually at the lower of 85% of the fair market value of
the stock at the beginning or end of the six-month payment period, through
accumulation of payroll deductions. Employees are required to hold stock
purchased under the ESPP for a period of one year from the date of purchase.
Common stock reserved for future sales totaled 485,970 shares at December 31,
1996. Shares purchased under the ESPP totaled 27,215 in 1996, 16,133 in 1995,
and 15,840 in 1994. The weighted-average grant-date fair value of shares
purchased under the ESPP was $6.82 in 1996 and $3.74 in 1995.
For the purpose of providing pro forma disclosures, the fair values of shares
purchased were estimated using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for purchases in 1996 and
1995, respectively: a risk-free interest rate of 5.3% and 6.1%, an expected
life of 6 months, expected volatility of 50%, and no expected dividends.
EMPLOYEE SAVINGS PLAN
Under the Company's Employee Savings Plan, a defined contribution plan,
employees who have attained age 21 may contribute 1% to 15% of their salary
on a pre-tax basis. Employer contributions are made at the discretion of
management and vest after five years of continuous employment with the
Company. Employer contributions approximated $300,000 in 1996, $200,000 in
1995, and $150,000 in 1994.
SEGMENT INFORMATION
During the years ended December 31, 1996, 1995, and 1994, one customer
accounted for $13,765,000, $17,237,000, and $12,655,000, or 11%, 16%, and
20%, respectively, of revenue.
The following table summarizes domestic and foreign sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
United States ...................... $ 55,216 $ 42,619 $24,033
Export:
Japan............................ 33,988 48,466 30,919
Europe........................... 15,958 12,243 7,011
Rest of world.................... 2,464 1,215 521
Japan............................... 15,217
-------- -------- -------
$122,843 $104,543 $62,484
======== ======== =======
</TABLE>
26
<PAGE> 20
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEGMENT INFORMATION (CONTINUED)
The following table summarizes information about the Company's 1996
operations in significant geographic areas. Operations in geographic areas
other than the United States were not material in prior years.
<TABLE>
<CAPTION>
United
States Japan Eliminations Consolidated
------ ----- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
Revenue
Unaffiliated customers....................... $107,626 $15,217 $122,843
Intercompany transfers....................... 73,525 638 $(74,163)
-------- ------- -------- --------
Total revenue ................................... 181,151 15,855 (74,163) 122,843
Income (loss) from operations ................... 65,049 (869) (25,887) 38,293
Identifiable assets ............................. 388,946 6,801 (194,494) 201,253
</TABLE>
Inventories are transferred to the Company's Japanese subsidiary at
previously established transfer prices. Intercompany transfers are eliminated
in consolidation.
ACQUISITION OF ISYS CONTROLS, INC.
On February 29, 1996, the Company acquired Isys Controls, Inc. ("Isys"), a
developer of machine vision systems for high-speed surface inspection. Under
the terms of the acquisition, accounted for as a pooling of interests, an
aggregate of 1,078,380 shares of Cognex common stock were exchanged for Isys
common shares, and 253,547 shares of Cognex common stock were exchanged for
Isys restricted common shares, with similar restrictions. An additional
68,042 shares of Cognex common stock were reserved for issuance upon exercise
of Isys stock options which, as a result of the merger, became options for
the purchase of Cognex common stock. The exchange ratio was 0.1470 of a share
of Cognex common stock for each share of Isys common stock.
The results of operations of Isys for the full year are included in the
consolidated financial statements of the Company for the year ended December
31, 1996. For all prior years presented, the financial position and results
of operations of Isys were not material to the previously reported financial
position and results of operations of the Company, and therefore, prior years
have not been restated.
ACQUISITION OF ACUMEN, INC.
On July 21, 1995, the Company acquired all of the outstanding shares of
Acumen, Inc. ("Acumen"), a developer of machine vision systems for
semiconductor wafer identification. The purchase price of $13,950,000
included $8,452,000 in cash, 96,140 shares of Cognex common stock with a fair
value of $4,170,000, and Cognex stock options valued at $1,328,000. At
December 31, 1996 and 1995, $1,935,000 and $3,125,000, respectively, of the
purchase price remained to be paid out in cash and stock options through the
year 2001. The acquisition was accounted for under the purchase method of
accounting. Accordingly, Acumen's results of operations have been included in
the Company's consolidated results of operations since the date of
acquisition.
27
<PAGE> 21
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACQUISITION OF ACUMEN, INC. (CONTINUED)
The purchase price was allocated among the identifiable assets of Acumen.
After allocating the purchase price to the net tangible assets and to
deferred compensation costs, which are amortized over eight years, acquired
technology was valued using a risk-adjusted cash flow model, under which
future cash flows were discounted taking into account risks related to
existing markets, the technology's life expectancy, future target markets and
potential changes thereto, and the competitive outlook for the technology.
This analysis resulted in an allocation of $2,369,000 to complete technology,
to be amortized over five years, and $10,189,000 to in-process technology
which had not reached technological feasibility and had no alternative future
use, and accordingly, was expensed immediately. Goodwill associated with the
purchase is being amortized over five years. At December 31, 1996 and 1995,
unamortized costs associated with the complete technology amounted to
$1,659,000 and $2,132,000, respectively.
The following summarized, pro forma results of operations assume the
acquisition took place at the beginning of the respective years and exclude
the $10,189,000 charge for acquired in-process technology (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Revenue............................ $107,572 $65,125
Net income......................... 33,694 15,846
Net income per share............... .80 .42
</TABLE>
SUPPLEMENTAL STATEMENT OF CASH FLOWS DISCLOSURE
Cash paid for income taxes totaled $11,218,000 in 1996, $7,982,000 in 1995,
and $5,844,000 in 1994.
Common stock received as payment for stock option exercises totaled $397,000
in 1995 and $192,000 in 1994.
In 1995 and 1994, the Company retired certain fully-depreciated property,
plant and equipment amounting to $3,049,000 and $211,000, respectively.
In 1996, the Company exchanged 1,078,380 shares of Cognex common stock for
Isys common shares, and 253,547 shares of Cognex common stock for Isys
restricted common shares, with similar restrictions, in connection with the
acquisition of Isys.
In 1995, the Company paid $6,454,000 in cash, net of cash acquired, as part
of the cost to acquire Acumen as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Fair value of tangible assets acquired ........ $ 1,026
Liabilities assumed ........................... (1,122)
Acquired technology ........................... 12,558
Goodwill and other intangible assets .......... 1,288
Issuance of stock and stock options ........... (5,498)
Other liabilities ............................. (1,798)
-------
Cash paid to acquire Acumen ................... $ 6,454
=======
</TABLE>
28
<PAGE> 22
COGNEX CORPORATION - REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF COGNEX CORPORATION:
We have audited the accompanying consolidated balance sheets of Cognex
Corporation as of December 31, 1996 and 1995 and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cognex
Corporation at December 31, 1996 and 1995 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 28, 1997
29
<PAGE> 23
COGNEX CORPORATION - FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1996 (1) (2) 1995 1994 1993 1992 (3)
------------ ---- ---- ---- --------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenue $122,843 $ 104,543 $62,484 $43,371 $28,642
Cost of revenue 38,855 22,543 13,884 10,280 6,488
-------- --------- ------- ------- -------
Gross margin 83,988 82,000 48,600 33,091 22,154
Research, development and engineering
expenses 19,434 13,190 9,933 6,205 5,622
Selling, general and administrative
expenses 26,261 23,973 16,847 12,183 9,565
Charge for acquired in-process
technology 10,189
-------- --------- ------- ------- -------
Income from operations 38,293 34,648 21,820 14,703 6,967
Investment income 4,726 3,147 1,462 1,316 1,437
Other income (expense) 678 (182)
-------- --------- ------- ------- -------
Income before provision for income taxes 43,697 37,613 23,282 16,019 8,404
Provision for income taxes 13,328 14,579 7,210 4,871 2,311
-------- --------- ------- ------- -------
Net income $ 30,369 $ 23,034 $16,072 $11,148 $ 6,093
======== ========= ======= ======= =======
Net income per share (4) $ .69 $ .55 $ .43 $ .31 $ .18
======== ========= ======= ======= =======
Weighted average common shares
outstanding (4) 43,814 41,952 37,150 35,668 34,812
======== ========= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1996 (1) 1995 1994 1993 1992
-------- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $152,817 $119,402 $ 88,619 $51,605 $38,123
Total assets 201,253 162,172 112,946 60,810 47,987
Long-term debt -- -- -- -- --
Stockholders' equity 182,689 143,916 103,608 55,061 41,110
</TABLE>
(1) 1996 results include the full year results of Isys Controls, Inc.
("Isys"), a developer of machine vision systems for high-speed surface
inspection acquired in February 1996. The Isys acquisition was accounted
for as a pooling of interests; however, because the results of Isys for
prior years were not material to the Company's previously reported
results, prior years have not been restated.
(2) Cost of revenue includes a $4,231,000 inventory charge for costs
associated with excess inventories resulting from product transition plans
over the next year, as well as reduced production plans.
(3) Cost of revenue includes $719,000 of estimated costs in excess of revenue
on certain research and development contracts, and selling, general and
administrative expenses include $344,000 of lease termination costs.
(4) Adjusted for the 2-for-1 stock splits effective December 18, 1995,
September 30, 1993, and February 14, 1992.
30
<PAGE> 24
COGNEX CORPORATION - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 29, DECEMBER
1996 (1) 1996 (1) 1996 (1) (2) 1996 (1)
-------- -------- ------------ --------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenue 34,887 34,949 26,540 26,467
Gross margin 25,681 25,358 14,243 18,706
Income from operations 14,570 13,690 2,913 7,120
Net income 10,829 10,134 3,244 6,162
Net income per share (3) .25 .23 .08 .14
Common stock prices: (3)
High 35.000 29.000 17.250 21.250
Low 18.000 15.750 11.750 12.250
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------
APRIL 2, JULY 2, OCTOBER 1, DECEMBER 31,
1995 1995 1995 1995
---- ---- ---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenue $19,437 $23,722 $29,784 $31,600
Gross margin 15,485 18,486 23,249 24,780
Charge for acquired in-process
technology 10,189
Income from operations 7,698 9,603 3,230 14,117
Net income 5,873 7,241 (633) 10,553
Net income per share (3) .14 .18 (.02) .25
Common stock prices: (3)
High 14.750 20.250 27.625 38.500
Low 10.500 13.250 18.250 19.250
</TABLE>
(1) 1996 results include the full year results of Isys Controls, Inc.
("Isys"), a developer of machine vision systems for high-speed surface
inspection acquired in February 1996. The Isys acquisition was accounted
for as a pooling of interests; however, because the results of Isys for
prior years were not material to the Company's previously reported
results, prior years have not been restated.
(2) Cost of revenue includes a $4,231,000 inventory charge for costs
associated with excess inventories resulting from product transition plans
over the next year, as well as reduced production plans.
(3) Adjusted for the 2-for-1 stock split effective December 18, 1995.
31
<PAGE> 25
COGNEX CORPORATION - COMPANY INFORMATION
FORM 10-K
A copy of the annual report filed with the Securities and Exchange Commission
on Form 10-K is available to stockholders, without charge, upon request to:
Department of Investor Relations
Cognex Corporation
One Vision Drive
Natick, MA 01760
Additional copies of this annual report are also available, without charge,
upon request to the above address.
The Company's common stock is traded on The NASDAQ Stock Market, under the
symbol CGNX. As of February 11, 1997, there were approximately 25,000
registered and non-registered holders of the Company's common stock.
No dividends on the Company's common stock were paid during 1996 and 1995.
32
<PAGE> 1
EXHIBIT 21
COGNEX CORPORATION
SUBSIDIARIES OF THE REGISTRANT
At December 31, 1996, the registrant had the following subsidiaries, the
financial statements of which are all included in the consolidated financial
statements of the registrant:
<TABLE>
<CAPTION>
NAME OF STATE/COUNTRY OF PERCENT
SUBSIDIARY INCORPORATION OWNERSHIP
---------- ------------- ---------
<S> <C> <C>
Cognex Technology and Investment
Corporation California 100%
Cognex Foreign Sales Corporation U.S. Virgin Islands 100%
Cognex K.K. Japan 100%
Cognex International, Inc. Delaware 100%
Cognex Germany, Inc. Massachusetts 100%
Cognex Singapore, Inc. Delaware 100%
Cognex Korea, Inc. Delaware 100%
Vision Drive, Inc. Delaware 100%
Isys Controls, Inc. California 100%
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Cognex Corporation on Form S-8 (File Nos. 33-31657, 33-32815, 33-36262,
33-36263, 33-72636, 33-72638, 33-81150, 33-81152, 333-2151, and 333-4621) of our
reports dated January 28, 1997 on our audits of the consolidated financial
statements and financial statement schedule of Cognex Corporation as of December
31, 1996 and 1995, and for each of the three years in the period ended December
31, 1996, which reports are incorporated by reference or included in this Annual
Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 48,423,000
<SECURITIES> 85,577,000
<RECEIVABLES> 19,777,000
<ALLOWANCES> 968,000
<INVENTORY> 7,013,000
<CURRENT-ASSETS> 169,388,000
<PP&E> 38,050,000
<DEPRECIATION> 9,719,000
<TOTAL-ASSETS> 201,253,000
<CURRENT-LIABILITIES> 16,571,000
<BONDS> 0
0
0
<COMMON> 82,000
<OTHER-SE> 182,607,000
<TOTAL-LIABILITY-AND-EQUITY> 201,253,000
<SALES> 122,843,000
<TOTAL-REVENUES> 122,843,000
<CGS> 38,855,000
<TOTAL-COSTS> 38,855,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 43,697,000
<INCOME-TAX> 13,328,000
<INCOME-CONTINUING> 30,369,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,369,000
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
